<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-65948
ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
(Exact name of Registrant as specified in its charter)
(See table of Co-Registrants)
MISSOURI 43-1623171
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11701 BORMAN DRIVE, SUITE 315
ST. LOUIS, MISSOURI 63146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 994-9070
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE
CONTAINED, TO THE BEST OF REGISTRANTS' KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM
10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ]
CERTAIN INFORMATION CALLED FOR ON ITEM 14 OF PART IV OF THIS FORM 10-K
IS INCORPORATED BY REFERENCE TO REGISTRANTS' REGISTRATION STATEMENT (NO.
33-65948) DATED JULY 13, 1993 WHICH WAS DECLARED EFFECTIVE OCTOBER 14, 1993,
REGISTRANTS' FORM 10-Q FILED NOVEMBER 29, 1993, REGISTRANTS' FORM 10-Q FILED
FEBRUARY 11, 1994, REGISTRANTS' FORM 10-K FILED SEPTEMBER 28, 1994,
REGISTRANTS' FORM 10-Q FILED FEBRUARY 14, 1995, REGISTRANTS' FORM 10-Q FILED
MAY 15, 1995, REGISTRANTS' FORM 10-Q FILED FEBRUARY 13, 1996 AND REGISTRANTS'
FORM 10-Q FILED MAY 14, 1996, REGISTRANTS' FORM 10-K FILED SEPTEMBER 26, 1996
AND REGISTRANTS' FORM 10-Q FILED NOVEMBER 13, 1996.
Index to Exhibits is on Page 72.
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CO-REGISTRANTS
Rosewood Care Center, Inc. of Swansea
Rosewood Care Center, Inc. of Galesburg
Rosewood Care Center, Inc. of East Peoria
Rosewood Care Center, Inc. of Peoria
Rosewood Care Center, Inc. of Alton
Rosewood Care Center, Inc. of Moline
Swansea Real Estate, Inc.
Galesburg Real Estate, Inc.
East Peoria Real Estate, Inc.
Peoria Real Estate, Inc.
Alton Real Estate, Inc.
Moline Real Estate, Inc.
(Exact names of Co-Registrants as specified in their charters)
No separate periodic or annual reports are filed for each of the
co-registrants and no separate financial statements are included for each of
the co-registrants because the co-registrants are effectively jointly and
severally liable with respect to the Notes and because such separate periodic
or annual reports and such separate financial statements are not deemed
material to investors.
2
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<TABLE>
<CAPTION>
ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
INDEX
<S> <C>
PART I 4
ITEM 1. BUSINESS 4
ITEM 2 PROPERTIES 10
ITEM 3 LEGAL PROCEEDINGS 11
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 11
PART II 12
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS 12
ITEM 6. SELECTED FINANCIAL DATA 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 8. COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 53
PART III 53
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY 53
ITEM 11. EXECUTIVE COMPENSATION 53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 54
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 55
PART IV 57
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K 57
(a) 1 and 2 Financial Statements and Financial Statement Schedule 57
(a) 3 Exhibits 57
(b) Reports on Form 8-K 57
(c) Exhibits 57
(d) Financial Statement Schedule 57
SUPPLEMENTAL INFORMATION 58
EXHIBIT INDEX 72
</TABLE>
3
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PART I
ITEM 1. BUSINESS.
BUSINESS OF THE REMIC
Rosewood Care Centers Capital Funding Corporation, a Missouri
corporation, was formed June 23, 1993 as a single purpose corporation, to
function as a real estate mortgage investment conduit ("REMIC"). The REMIC
was organized to issue the 7 1/4% First Mortgage Redeemable Bonds due
November 1, 2013 and to make first mortgage loans to six affiliated companies
(the "Borrowing Companies"). Each of the six Borrowing Companies owns a
skilled nursing facility which is state-licensed. The six skilled nursing
facilities are operated by six affiliated companies, which are guarantors of
the first mortgage loans (the "Guarantors") (collectively the Borrowing
Companies and the Guarantors are the "Companies"). The principal assets of
the REMIC are the notes from the six first mortgage loans. The REMIC does not
engage in any business or investment activities other than in connection with
administering the repayment of the bonds and the first mortgage loans.
BUSINESS OF THE COMPANIES
The Companies own and operate six Rosewood Care Centersm skilled
nursing facilities located in Illinois, each with a 120 bed capacity. The
facilities provide convalescent care, long-term care, and rehabilitative
services primarily for elderly patients. Each facility offers a complete
therapy program, including physical, occupational and speech therapy under
the direction of a registered therapist.
The Companies principally market to private paying patients and attempt
to provide a high-quality alternative to competing facilities, both in the
physical surroundings and services offered. The Companies' marketing
strategy focuses on obtaining the highest average daily rate as well as high
occupancy levels in order to maximize revenues from the facilities. Although
the facilities provide long-term care for those patients who require it,
emphasis is on rehabilitative services to allow a patient to convalesce and
either return to independent living outside the facility or enjoy a maximum
level of independence and mobility within the facility. The Companies
believe this emphasis has an appeal to a much larger private payor market
than exists for a strictly long-term care oriented nursing home.
Approximately 60% of the patients in the facilities are private paying,
though all the facilities participate in both the Medicare and Medicaid
programs. The majority of the patients have sufficient funds and desire at
the outset to try restorative therapy, which is covered by Medicare and
private insurance. The Medicare program and various forms of private payment
are the principal payors for short-term nursing home care and rehabilitative
services. Because of the high percentage of patients in the facilities that
are private paying, the average daily rate of the facilities is higher than
it would be if the facilities had a greater participation in the Medicaid
program. All of the facilities currently participate in one or more managed
care programs. The Companies are negotiating with additional third parties
and expect to enter into additional managed care contracts in the future.
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OPERATIONS
Each skilled nursing facility is managed by an affiliated company, HSM
Management Services, Inc., an Illinois corporation ("HSM Management"),
pursuant to management agreements with each Guarantor. HSM Management
provides a state-licensed nursing home administrator for each skilled nursing
facility. HSM Management employs a director of operations and four directors
of nursing who supervise operations at the six facilities owned by the
Companies, as well as others. In addition, nursing staff at each skilled
nursing facility is under the supervision of a state-licensed director of
nursing who is an employee of the facility. The nursing staffs consist of
registered nurses and licensed practical nurses, as well as nurses aides.
The facilities also contract with others to provide therapy services, medical
and dietary consulting services, personal grooming services and recreational
activities.
The management agreements entered into with Hovan Enterprises, Inc.
("Hovan"), the predecessor of HSM Management, Inc. by each Guarantor on
October 21, 1993, the bond issue date, continue in full force and effect
after the merger of Hovan into HSM Management. All of the provisions of the
management agreements apply to HSM Management in the same way they previously
applied to Hovan.
REVENUE BY PAYOR
The following table indicates the percentage of patient service revenue
of the Companies by type of payor for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
1995 1996 1997
---- ---- ----
(Dollars in Thousands)
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Private $16,827 65.0% $17,079 62.0% $17,808 60.0%
Medicare 7,443 29.0 9,293 33.0 10,142 35.0
Medicaid 1,495 6.0 1,319 5.0 1,494 5.0
------- ----- ------- ----- ------- -----
Total $25,765 100.0% $27,691 100.0% $29,444 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
OCCUPANCY BY LOCATION AS A PERCENTAGE OF AVAILABLE BEDS
Each facility has the capacity of 120 beds. Most of the rooms are
designed to be semi-private, with two beds per room. Some semi-private rooms
are made available as private at a higher daily rate, thereby resulting in a
lower number of available beds at a facility. The Companies focus on
obtaining the highest average daily rate which may produce higher revenues
even at lower occupancies, whereas if the facilities were principally
Medicaid providers, maximum revenues could only be achieved with maximum
occupancies. The Companies are addressing the decrease in occupancy at the
facility in East Peoria which has occurred due to administrative turnover and
operational difficulties. The following table indicates occupancy at each
facility as a percentage of available beds for the periods indicated.
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<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Swansea 91.7% 96.6% 97.9% 99.5% 96.4%
Galesburg 90.4 95.7 91.4 82.2 86.3
Alton 90.2 97.1 95.7 97.6 98.1
Peoria 79.8 91.6 89.7 86.4 88.9
East Peoria 88.6 88.6 83.7 74.5 73.8
Moline 91.0 94.5 94.8 89.2 91.7
---- ---- ---- ---- ----
Combined Average 88.6% 93.8% 92.2% 87.7% 89.2%
==== ==== ==== ==== ====
</TABLE>
MARKETING
The Companies attempt to increase admissions through marketing
programs. The Companies' marketing programs are executed under the direction
of a full time marketing staff member employed by HSM Management. Marketing
is done through direct mail, community programs and television. Although the
Companies provide long-term nursing home care, their marketing strategy
emphasizes short-term nursing home care for rehabilitative purposes. The
Companies believe this emphasis has an appeal to a much larger private payor
market than exists for strictly long-term care oriented nursing homes.
GOVERNMENTAL REGULATION AND REIMBURSEMENT
The Companies' nursing facilities are required to comply with various
federal and state health care regulations and statutes. Compliance with the
state licensing regulations is a prerequisite for the operation of the
facilities and for participation in government sponsored health care programs
such as Medicaid and Medicare.
All six facilities participate in the federally administered Medicare
and Medicaid programs. Medicare is a health insurance program for the aged
and certain other disabled individuals, operated by the federal government
and administered by an insurance intermediary. As a result of the Companies'
emphasis on short-term rehabilitative nursing care, which is covered by
Medicare, the percentage of patient service revenue attributable to Medicare
continues to be a significant sector of the Companies' total revenue.
Medicaid is a medical assistance program for the indigent, operated by the
State of Illinois with financial aid provided by the federal government. Prior
to January 1991, four of the six facilities participated in the state
administered Medicaid program. In 1991, the Companies began to voluntarily
withdraw the facilities from the Medicaid program. However, in May 1993, as a
result of a change in state policy, all six Guarantors requested and received
certification in the Medicaid program for a distinct part of each facility for a
limited number of beds. This certification permits the Companies to participate
in the Medicaid program while limiting the Medicaid census at their respective
facilities. The Galesburg and East Peoria facilities are certified for twenty
beds each and the four remaining facilities for ten beds each.
Changes in the reimbursement policies of such funding programs as a
result of budget cuts by Federal and State governments or other legislative
and regulatory actions could have a material adverse effect on the Companies'
financial position, results of operations and cash flows.
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The Companies have experienced significant growth in ancillary
revenues, primarily for services reimbursed by Medicare, over the past
several years. Ancillary revenues are derived from providing services to
residents over and above room and board and include services such as
occupational, physical, speech, and IV therapy, as well as prescription drugs
and medical supplies. Such services are being provided primarily to Medicare
and private pay residents which is consistent with the current trend of
providing services in the lower cost setting of nursing facilities rather
than in hospitals.
Under current reimbursement regulations, funds received under Medicare
programs are subject to audit by the third party payor responsible for
administering the facility account. This results either in amounts due to or
from the facilities based on the actual costs of participating in the
Medicare program during the year. Past audits of the Companies'
reimbursements through the fiscal year ending June 30, 1994, have not
resulted in any material adjustments for any of the Companies that were not
otherwise indemnified for by private vendors to the Companies. In the audits
of the Medicare program for all the facilities for the fiscal year ended June
30, 1995, the Companies experienced a material negative adjustment to their
Medicare cost reports with regard to costs for therapy services furnished by
a private vendor. The Companies were indemnified by the private vendor for
most of that negative adjustment and the indemnification agreement remains in
effect. Audits of the Medicare program for all the facilities have recently
been completed through the fiscal year ended June 30, 1996 and did not result
in any material adjustments for any of the Companies.
Medicare reimbursement of routine operating costs is subject to a cap
that is related to costs of similar providers. In cases where this cap is
exceeded, the facility may obtain an exception if it can show that the excess
costs are caused by "atypical services." All six of the facilities exceeded
the cap by the aggregate amount of $539,000 in 1997. The Company is in the
process of compiling the information necessary to apply for the exception for
the facilities which qualify for 1997. The Company had applied for the
exception for two facilities for 1994 and one facility for 1993 which were
approved and paid during the current fiscal year aggregating $54,093. The
Companies have claims filed and pending for two facilities for 1995 in the
amount of $146,507. In addition, the Companies are compiling information to
request an exception for all six facilities for the fiscal year ended June
30, 1996 in the amount of $225,563. Management cannot predict whether the
Company will be successful in its application to the regulatory agency to
grant the pending exceptions.
In addition to the requirements for participation in the Medicare and
Medicaid programs, the Companies' health care facilities are subject to
annual licensing and other regulatory requirements of state authorities. In
order to maintain the operators' licenses, the nursing facilities are
inspected and must meet certain statutory and administrative requirements.
These inspections are called surveys. The survey requirements relate to the
physical condition of the building and equipment used in patient care, the
quality and adequacy of personnel and the quality of medical care. In prior
years, the Illinois Department of Public Health ("IDPH") sent each facility
the results of its annual survey, citing deficiencies. The facility then
conducted its own investigation and reported back to the IDPH with its plan
of correction. IDPH only issued its letter that the facility was not in
substantial compliance with applicable law and regulations if the facility
did not promptly and appropriately respond and correct the deficiencies
listed in IDPH's initial report to the facility of its survey results. The
Health Care Financing Administration of the Department of Health and
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Human Services ("HCFA") adopted new survey, certification and enforcement
procedures by regulations effective July 1, 1995, to implement various
Medicare and Medicaid provisions of the Omnibus Budget Reconciliation Act of
1987 ("OBRA"). In the last fiscal year, IDPH, in administering compliance
with HCFA regulations, has begun a new procedure. Currently, the initial
letter sent to each facility reporting the survey results states that the
facility has been found not to be in substantial compliance due to the
enumerated deficiencies. However, in the ordinary course, the letter further
states that if the facility promptly and appropriately responds and corrects
the deficiencies, IDPH is recommending that the facility be certified for
continued participation in the Medicare and Medicaid programs. Although the
Companies believe that, as a practical matter, IDPH will continue to
administer its survey and correction procedures in substantially the same
manner as in the past, there can be no assurance of what position HCFA and
the IDPH will adopt in the future in regard to these survey letters citing
routine deficiencies. There also can be no assurance that the Company will
not be required to expend significant sums in order to maintain its licenses
in the future.
While federal regulations do not provide states with the grounds to
curtail funding of their Medicaid cost reimbursement programs due to state
budget deficiencies, the states have reduced funding in the past. No
assurance can be given that the state will not do so in the future or that
the future funding of Medicaid programs will remain comparable to the present
level.
Health care funding was again a prominent issue in the United States
Congress during the past year. Proposals continue to be put forth which seek
to reduce the costs of the Medicare and Medicaid programs by lowering the
utilization of the programs and by controlling costs within the programs.
As a result of the national pressure on health care costs, the Medicare
program continues to face significant cutbacks and intense scrutiny. Due to
this atmosphere, the Companies have continued to experience closer scrutiny
and delays with regard to payment of claims under the Medicare program. The
Companies do not expect this environment to improve in the near future and
believe they will experience future problems relating to reimbursement, some
of which could have a significant effect on operations.
The Companies are carefully monitoring these developments and
attempting to structure contractual arrangements which they believe will
minimize the impact of reductions in government reimbursement. However, no
assurance can be made that the funding of Medicare and Medicaid will remain
at their current levels. Changes in the reimbursement policies of Medicare
and Medicaid as a result of budget cuts by federal and state governments or
other legislative actions could adversely affect the revenues of the
Companies.
COMPETITION
The long-term care industry is highly competitive. The Companies
compete with other providers on the basis of the breadth and quality of
services they offer, the quality of their facilities and price. The
Companies also compete in the recruitment of qualified health care personnel
and the acquisition and development of additional facilities. The Companies'
current and potential competitors include national, regional and local
long-term care providers as well as hospital-based extended care providers
and rehabilitation hospitals, many of which have significantly greater financial
and other resources than the Companies. In addition, certain competitors are
operated by not-for-profit organizations and similar businesses which can
finance capital expenditures on a tax-exempt basis or
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receive charitable contributions unavailable to the Companies. Managed care
contracts will also have an impact on competition, as services formerly provided
at hospitals are shifted to nursing homes and as the managed care model becomes
more common in the nursing home industry.
Alternative facilities, such as assisted living facilities, also
compete with the Companies' facilities for the lower acuity residents. Unlike
for skilled nursing facilities, it is not always necessary to obtain a CON in
order to build these facilities. In addition, assisted living facilities are
not always subject to the licensing requirements or the same level of
inspection and other regulatory compliance as those for skilled nursing
facilities.
The degree of success with which the Companies compete varies from
location to location and depends on a number of factors, including the number
of competing facilities in the local market, types of services, quality of
care, reputation, age and appearance of each facility and the cost of care in
each location. In light of these factors, the Companies seek to meet
competition in each location by establishing a reputation in the local
community for high quality nursing services and attractive facilities, and by
responding to the specialized health needs of their patients and referral
sources.
The need for skilled nursing facilities is expected to increase in the
future as the demand for rehabilitative and long-term care increases.
Construction of new skilled nursing facilities near the Companies' facilities
could adversely affect the Companies' business. However, state regulations
generally require a CON before a new skilled nursing facility can be
constructed or additional beds can be added to existing facilities. The
Companies believe that these regulations reduce the possibility of
overbuilding and promote higher utilization of existing facilities.
At the time the CON was granted for each of the Companies' skilled
nursing facilities, the addition of such facilities resulted in an excess
number of beds for purposes of future CON analysis. Under current CON
regulations, existing facilities are given a preference in the opportunity to
meet any additional need by expansion before a CON is issued for construction
of a new facility. There continues to be pressure to repeal existing CON
laws and there can be no assurance that the CON procedure will not be
eliminated or changed in the future. Although the terms of the loan documents
prohibit the Borrowing Companies from undertaking new construction, the
Guarantors are not prohibited from operating additional facilities, including
expansion facilities. All of the facilities are adjacent to excess acreage
owned by affiliated companies and related companies are allowed to construct
expansions to current facilities under certain conditions. At Galesburg and
Alton, affiliated companies commenced construction of expansions during the
1997 fiscal year.
LEASES
Each of the facilities is leased by a Guarantor from the Borrowing
Company which owns the facility. Lease payments consist of a base rent which
is adjustable based on the amount needed by the Borrowing Company to service
mortgage indebtedness on the facility and additional rent based on the
economic performance of the facilities. Each lease has an initial term of
four years and may be extended for up to five additional four-year periods.
Under each lease, the Borrowing Company is required to furnish the building
and all equipment and furnishings and any replacements necessary for the
operation of the facility. The Guarantor is responsible for paying all other
expenses associated with operating
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the facility. The lease payments represent substantially all of the income
earned by the Borrowing Companies.
INSURANCE
The Companies carry property insurance, general liability insurance and
other insurance which they believe adequate to cover the facilities and their
businesses.
EMPLOYEES
The REMIC and the Borrowing Companies have no employees. The
Guarantors employed 524 persons at June 30, 1997. None of the employees of
the Companies are covered by collective bargaining agreements. The Companies
believe that their relations with their employees are good and they have
never experienced a major labor dispute.
The Company has experienced increases in its labor costs due to higher
wages and greater benefits required to attract and retain qualified
personnel. The federal government increased the minimum wage effective
October 1, 1996 with another increase effective September 1, 1997. The
legislation had little effect on the companies wage rates and the companies
do not anticipate a material impact on their wage rates for the fiscal year
ending June 30, 1998, since all Company employees earn wages in excess of the
new minimum wage rates set by the federal government; however the Company
believes there may be competitive pressure to increase wage levels in the
future. The effect of the change in minimum wage levels is not expected to
have a material effect on the Companies future operations because the
Companies believe a significant portion of any increase would be reimbursed
through Medicare and Medicaid rate increases.
The Company is occasionally experiencing shortages in qualified
personnel to staff the facilities, and it competes for personnel with other
healthcare providers and service industries, which could adversely affect the
availability of qualified personnel in the future.
ITEM 2. PROPERTIES.
THE FACILITIES
Each of the facilities is a one story, 120 bed skilled nursing care
facility consisting of approximately 38,000 to 40,000 square feet and
situated on 4 to 7 acres. Each facility has been built within the last ten
years, with poured concrete foundation and brick veneer exterior walls. The
facilities were built by the Companies for use as skilled nursing facilities
with modern design and high quality systems. Accordingly, the Companies
believe the properties are well suited to present and future needs. The six
facilities are encumbered by the first mortgages given to the REMIC.
ROSEWOOD CARE CENTER OF SWANSEA
Rosewood Care Center of Swansea is owned by Swansea Real Estate, Inc.
and is operated by Rosewood Care Center, Inc. of Swansea. The Swansea
Facility opened October 8, 1987 and is located at 100 Rosewood Village Drive,
Swansea, Illinois 62221 on the west side of Highway 159, just north of
Fullerton Road in Swansea, Illinois.
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ROSEWOOD CARE CENTER OF GALESBURG
Rosewood Care Center of Galesburg is owned by Galesburg Real Estate,
Inc. and is operated by Rosewood Care Center, Inc. of Galesburg. The
Galesburg Facility opened December 9, 1987 and is located at 1250 West Carl
Sandburg Dr., Galesburg, Illinois 61401 on the southeast corner of Sandburg
Mall Access Road and West Carl Sandburg Drive.
ROSEWOOD CARE CENTER OF ALTON
Rosewood Care Center of Alton is owned by Alton Real Estate, Inc. and
is operated by Rosewood Care Center, Inc. of Alton. The Alton facility
opened May 15, 1989 and is located at 3490 Humbert Road, Alton, Illinois
62002 on the north side of Pebble Creek Lane at Humbert Road, Alton,
Illinois.
ROSEWOOD CARE CENTER OF PEORIA
Rosewood Care Center of Peoria is owned by Peoria Real Estate, Inc. and
is operated by Rosewood Care Center, Inc. of Peoria. The Peoria facility
opened June 12, 1989 and is located at 1500 West Northmoor Road, Peoria,
Illinois 61614 at the junction of Northmoor Road and University Avenue in
Northwest Peoria.
ROSEWOOD CARE CENTER OF EAST PEORIA
Rosewood Care Center of East Peoria is owned by East Peoria Real
Estate, Inc. and is operated by Rosewood Care Center, Inc. of East Peoria.
The East Peoria facility opened April 18, 1989 and is located at 900
Centennial Drive, East Peoria, Illinois 61611 on the south side of Centennial
Drive and Oakwood, East Peoria, Illinois. The East Peoria facility is
approximately five miles from the Peoria facility.
ROSEWOOD CARE CENTER OF MOLINE
Rosewood Care Center of Moline is owned by Moline Real Estate, Inc. and
is operated by Rosewood Care Center, Inc. of Moline. The Moline facility
opened May 6, 1990 and is located at 7300 - 34th Avenue, Moline, Illinois
61265 on 34th Avenue two blocks east of Black Hawk College in Moline,
Illinois.
ITEM 3. LEGAL PROCEEDINGS.
There are various lawsuits and regulatory actions pending against the
Companies arising in the normal course of business, some of which seek
punitive damages. The Companies do not believe that the ultimate resolution
of these matters will have a material adverse effect on the Companies'
combined financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA.
The following table of selected combined financial data should be read
in conjunction with the Combined Financial Statements and related Notes
thereto included elsewhere in this annual report on Form 10-K.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Patient Service Revenue:
Private........................ $15,083 $16,307 $16,827 $17,079 $17,808
Medicare....................... 5,859 6,632 7,443 9,293 10,142
Medicaid....................... 1,811 1,489 1,495 1,319 1,494
Other Patient Revenues, Net of
Expenses 80 76 74 62 76
------- ------- ------- ------- -------
Total.......................... 22,833 24,504 25,839 27,753 29,520
------- ------- ------- ------- -------
Facility Expenses................ 13,366 14,278 16,050 18,009 19,976
------- ------- ------- ------- -------
Income After Facility Expenses... 9,467 10,226 9,789 9,744 9,544
------- ------- ------- ------- -------
Nonfacility Expenses............. 2,141 2,867 2,772 2,829 2,815
------- ------- ------- ------- -------
Income Before Incentives......... 5,552 7,359 7,017 6,915 6,729
Incentive Management Fees and
Officers' Bonuses.............. (1,528) (2,573) (2,221) (2,167) (2,040)
------- ------- ------- ------- -------
Income From Operations........... 3,414 4,786 4,796 4,748 4,689
------- ------- ------- ------- -------
Other Income (expenses).......... (1,342) (1,576) (1,447) (1,367) (1,372)
------- ------- ------- ------- -------
Income Before Taxes.............. 2,072 3,210 3,349 3,381 3,317
Income Tax (expense) Benefit..... (299) (346) (336) (306) (270)
------- ------- ------- ------- -------
Net Income ...................... $ 1,773 $ 2,864 $ 3,013 $ 3,075 $ 3,047
======= ======= ======= ======= =======
OTHER DATA:
Net income available for debt
service<F1>................... $ 6,958 $ 9,075 $ 8,905 $ 8,788 $ 8,479
Debt service coverage ratio<F2>.. 2.90x 2.85x 2.81x 2.71x
DIVIDENDS DECLARED ................ $ 1,649 $ 2,542 $ 2,819 $ 2,819 $ 2,947
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets $ 4,197 $ 5,916 $ 5,913 $ 6,960 $ 7,281
Total Assets 27,118 36,478 35,584 34,457 32,847
Current Liabilities 2,689 4,147 4,726 5,136 5,353
Long-Term Debt 23,367 30,947 29,280 27,487 25,560
Stockholders Equity (Deficit) 1,062 1,384 1,578 1,834 1,934
<FN>
- -------------------------
<F1> "Net Income Available for Debt Service" is defined in the loan agreement
among the REMIC and the Companies dated as of October 1, 1993. It is
calculated for a 12 month period by taking the income from operations and
adding non-cash expenditures (depreciation and amortization) and expenses
subordinated to annual debt service (management fees, officers' bonuses) and
interest income.
<F2> Calculated by dividing the Net Income Available for Debt Service by the
annual debt service on the 7 1/4% First Mortgage Redeemable Bonds due
November 1, 2013.
</TABLE>
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Companies' operating strategy focuses on the average daily rate as
well as on occupancy levels in order to maximize revenues from the
facilities. The Companies principally market their services to private
paying patients. Revenues from this market continued to grow in 1997.
However, there was a significant decrease in net income during the last
fiscal year at the facility in East Peoria, where occupancy decreased
appreciably due to administrative turnover and operational difficulties.
The Companies have continued their marketing emphasis on short-term
convalescent care while continuing to provide long-term care. The number of
short-term care patients and demand for ancillary rehabilitative and therapy
services continues to increase. Revenues and expenses associated with
rehabilitative and therapy have continued to increase through June 30, 1997.
The Medicare program and various forms of private payment are principal
payors for short-term nursing home care and rehabilitative services. All six
of the facilities participate in the federally administered Medicare program.
In May 1993, as a result of a change in state policy allowing limited
participation in Medicaid, the Companies requested and received certification
in the Medicaid program for a distinct number of beds in each facility. The
Companies believe this is the most economically desirable participation in
the Medicaid program for them. Medicare revenues are expected to remain at
substantially the level experienced in fiscal year 1997. Private patient
revenues continue to represent the major share of all patient service
revenues. All of the Companies currently participate in one or more managed
care programs. The Companies are negotiating with third parties and expect to
enter into additional managed care contracts in the future.
OPERATING RESULTS
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
Net Revenues. Net revenues increased to $29,520,000 for the year ended
June 30, 1997, from $27,753,000 for the same period in 1996, an increase of
$1,767,000 or 6.4%. Private pay revenue increased $729,000 from $17,079,000
for the year ended June 30, 1996 to $17,808,000 for the year ended June 30,
1997. Revenue generated from ancillary services for private paying patients
decreased $161,000 while revenue from room charges increased $890,000 when
compared to the same period last year. Private census has increased from
162,387 patient days for 1996 to 163,148 patient days for the current year
ended June 30, 1997. The average room rate for the year ended June 30, 1997
has increased to $108 per day compared to $102 per day for the year ended
June 30, 1996.
Medicare revenue increased from $9,293,000 for the year ended June 30,
1996 to $10,142,000 for the year ended June 30, 1997, an increase of $849,000
or 9.1%. The Medicare census has decreased from 39,509 patient days for the
year ended June 30, 1996 to 38,744 patient days for the year ended June 30,
1997. The increase in revenue is the direct result of an increase in the
Companies' Medicare reimbursement rate resulting from the increase in
ancillary services provided to residents.
Medicaid revenue has increased from $1,319,000 for the year ended June
30, 1996 to $1,494,000 for the year ended June 30, 1997. The increase is the
result of
13
<PAGE> 14
an increase in patient census from 20,772 patient days for the year ended June
30, 1996 compared to 22,654 patient days for the year ended June 30, 1997. The
facilities have received a minor increase of approximately $2 per day in the
reimbursement rate paid to the facilities for residents covered by the Medicaid
program.
The occupancy of the facilities remains strong, with an occupancy rate
of 89.2% of available beds for the current year compared to an occupancy rate
of 87.7% of available beds for the year ended June 30, 1996.
Facility Operating Expense. Facility operating expenses increased to
$19,976,000 for the year ended June 30, 1997, (or $88.96 per patient day)
from $18,009,000 (or $80.88 per patient day) for the fiscal year ended June
30, 1996, an increase of $1,967,000 (or $8.08 per patient day).
Administrative expenses increased $153,000 or 18.0%, from $851,000 for
the year ended June 30, 1996 to $1,004,000 for the year ended June 30, 1997.
After adjusting for inflation, the majority of the increase can be accounted
for by the increase in marketing and advertising, employment ads,
professional fees, and telephone. The cost per patient day aggregates $4.47
per patient day for the current fiscal year ended June 30, 1997 compared to
$3.82 per patient day for the fiscal year ended June 30, 1996.
Employee fringe benefits increased $477,000 when compared to the same
period last year. The cost per patient day increased from $7.97 for 1996 to
$10.02 for the current fiscal year ended June 30, 1997. The majority of the
increase can be accounted for by the increase in payroll taxes, health
insurance and the cost of workers' compensation insurance for the year.
Payroll taxes increased as a result of the increase in staffing during the
current fiscal year, along with an increase in the state unemployment tax
rates. Full time employee equivalents aggregated 524 and 497 for 1997 and
1996 respectively. The cost of health insurance increased as a result of an
increase in the number of employees covered under the Companies' health
insurance programs and an increase in the annual premium cost paid by the
Companies. The Companies are members of an association of nursing home
operators within the State of Illinois which provides workers' compensation
insurance coverage to its members at a substantial savings from that offered
by the commercial insurance market. The premiums are based on actuarially
determined rates established for the association applied to the actual
payroll of the Companies. If during any covered year the claims exceed the
estimated premiums, the Companies are required to reimburse the association
for those expenditures. The Companies have participated in the program since
1991 and, prior to the current year, have not had the claims exceed the
premiums paid to the association, which has resulted in major savings to the
Companies in prior years. During the current year, the claims exceeded the
premiums paid and the Companies were required to pay an additional premium
aggregating $287,000 to cover the cost of the claims filed by employees for
work related injuries. Management does not anticipate the claims exceeding
the claim fund in the next fiscal year but cannot guarantee that additional
payments will not be required in the future.
Dietary expenses increased $113,000 or 6.3% compared to the same period
last year. The increase is due to an increase in wages of $53,000 and an
increase in unprepared food cost of $60,000. The cost per patient day
aggregated $8.45 per patient day for the year ended June 30, 1997, compared
to $8.08 per patient day for the year ended June 30, 1996.
Nursing service increased $572,000 or 8.8% when compared to the same
period last year. Nursing payroll has increased $473,000 from $5,803,000 for
the prior fiscal year to $6,276,000 for the year ended June 30, 1997. Other
nursing
14
<PAGE> 15
expenses increased approximately $99,000 when compared to the same period last
year which was primarily the result of an increase in the cost of medical
supplies.
Ancillary services (which is comprised of physical therapy, occupational
therapy, speech therapy, drugs and medical supplies), increased $418,000 from
$4,560,000 for the year ended June 30, 1996 to $4,978,000 for the year ended
June 30, 1997. The increases in cost are the result of the continued increase
in therapy utilization by the residents of the facility, which services are
primarily covered by Medicare.
Plant utilities and maintenance increased from $1,121,000 for the year
ended June 30, 1996 to $1,186,000 for the year ended June 30, 1997, an
increase of $65,000 or 5.80%. The majority of the increase can be accounted
for by the increase in repairs, snow removal and garbage collection. The
cost of repairs has increased approximately $38,000 for the current year as a
result of maintenance to the heat pump system at three of the facilities.
The cost of trash removal has increased $11,000 when compared to the same
period last year. This is a result of the continued cost increase for the
disposal of medical waste. The balance of the increase can be accounted for
by increase in the cost of snow removal due to the harsh winter weather
experienced at three of the locations.
Housekeeping and laundry expenses increased from $851,000 for the year
ended June 30, 1996 to $924,000 for the year ended June 30, 1997, an increase
of $73,000 or 8.6%. The cost of payroll has increased $54,000 when compared
to the same period last year, with the balance of the increase due to the
increase in the cost of housekeeping supplies.
Social service and activities has increased from $550,000 for the year
ended June 30, 1996 to $646,000 for the year ended June 30, 1997. The
increase is the result of staffing increases in the Social Service department
at all of the facilities.
Nonfacility Expense. Real estate taxes decreased $22,000 when
compared to the same period last year. The reduction is the result of a
decrease in the real estate assessment of two of the six facilities.
Depreciation and amortization are virtually unchanged from the same
period last year, increasing only $8,000 over the prior fiscal year.
Incentive Fees. Incentive management fees decreased $131,000 when
compared to the same period last year as a result of the decrease in the
income before incentives of the nursing facilities.
Officers' Bonuses. Officers' bonuses were awarded by the sole Director
of the Companies in the amount of $192,000 for the current fiscal year,
compared to $188,000 for the prior year ended June 30, 1996.
Other Income and Expense. Interest income decreased $131,000 when
compared to the same period last year as a result of the decrease in the
notes receivable outstanding during the year with the affiliated company
Rosewood Care Center Holding Co. from $8,056,000 for the year ended June 30,
1996 to $7,034,000 for the year ended June 30, 1997.
Interest expense decreased $126,000 compared to the same period last
year which is the result of the decrease in long term debt of the facilities.
15
<PAGE> 16
Income Taxes. Income taxes decreased $36,000 when compared to the same
period last year. The real estate companies are taxed at the individual
shareholder level and not the corporate level. A larger portion of the
combined revenue of the Companies was sheltered in the real estate companies
for the current fiscal year compared to the fiscal year ended June 30, 1996
which results in a decrease in income taxes for the current period.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
Net Revenues. Net revenues increased to $27,753,000 for the year ended
June 30, 1996, from $25,839,000 for the same period in 1995, an increase of
$1,914,000 or 7.4%. Private revenue increased $252,000 or 1.5%, which was
the result of an increase in the room revenue of $208,000 and a $44,000
increase in ancillary revenue during the 1996 fiscal year. Private census
decreased to 162,387 patient days compared to a private census of 170,342
patient days for the fiscal year ended June 30, 1995. The average room rate
for the year ended June 30, 1996 increased to $102 per day compared to $96
per day for 1995.
Medicare revenue increased $1,850,000 or 24.9%, due to an increase in
the Medicare reimbursement rate for the 1996 fiscal year, which was a direct
result of the increase in the ancillary services provided to Medicare
eligible residents. The Medicare census for the fiscal year ended June 30,
1996, aggregated 39,509 patient days compared to 40,049 for the fiscal year
ended June 30, 1995.
Medicaid revenue decreased $176,000 or 11.8% when compared to the same
period in the 1995 fiscal year.
The total patient census aggregated 87.7% of available beds for the
fiscal year ended June 30, 1996, compared to 92.2% for the prior fiscal year.
Facility Operating Expense. Facility operating expenses increased to
$18,009,000 for the period ended June 30, 1996, (or $80.88 per patient day)
from $16,050,000 (or $68.74 per patient day) for the fiscal year ended June
30, 1995, an increase of $1,959,000 (or $12.14 per patient day).
Administrative expenses decreased $73,000 compared to the same period
in the 1995 fiscal year, primarily as a result of a decrease in payroll
expense for the 1996 fiscal year.
Employee fringe benefit expenses decreased $32,000 compared to the same
period for the prior fiscal year. The majority of the decrease was
attributable to the decrease in the cost of workmen's compensation insurance.
Dietary expenses increased $51,000 or 2.9% compared to the same period
for the prior fiscal year, primarily due to inflation.
Nursing expenses decreased $38,000 from $6,556,000 for 1995 to
$6,518,000 for the year ended June 30, 1996. Nursing payroll expenses
increased $303,000 from $5,500,000 for 1995 to $5,803,000 for 1996, while
other nursing expenses decreased $341,000 compared to the same period in the
prior fiscal year.
Ancillary services (comprised of physical therapy, occupational
therapy, speech therapy, drugs and medical supplies), increased $1,826,000
compared to the same period in the prior year. The increase in cost was the
direct result of the increase in ancillary services billed to Medicare and
private pay residents.
16
<PAGE> 17
Plant utilities and maintenance expenses increased $97,000 compared to
the same period for the prior fiscal year.
Housekeeping and laundry expenses increased $37,000 or 4.5% compared to
the same period in the prior fiscal year. The majority of the increase was
the result of an increase in the cost of supplies for those departments.
Social service and activities expenses increased $91,000 or 19.8%
compared to the same period for the prior fiscal year. The increase was
attributable to an increase in staffing for those departments.
Nonfacility Expense. Real estate taxes and insurance increased
$36,000, which was the result of an increase in the cost of liability and
property insurance of $10,000 and a $26,000 increase in real estate taxes.
Depreciation and amortization expense increased $21,000 compared to the
same period for the prior fiscal year. The increase was a result of
leasehold improvements aggregating $159,000 and $171,000 for the fiscal years
ended June 30, 1996 and 1995 respectively.
Incentive Fees. Incentive management fees decreased $62,000 compared
to the same period for the prior fiscal year as a result of the decrease in
the income from operations of the nursing facilities. Incentive management
fees are based on the combined performance of the six facilities. Officers'
bonuses of $188,000 paid during 1996, compared to $180,000 for 1995, were
awarded at the discretion of the Companies' sole director.
Other Income and Expense. Interest income decreased $36,000 or 4.2%
compared to the same period last year. The decrease was the result of a
decrease in notes receivable from $9,332,000 from Rosewood Care Center
Holding Co. for 1995 to $8,056,000 for the fiscal year ended June 30, 1996.
Interest expense decreased $116,000 compared to the same period for the
prior fiscal year, which was the result of the decrease in the outstanding
long-term debt.
Income Taxes. Income taxes decreased $30,000 while income before
income taxes increased $32,000 because the real estate companies' income is
taxed at the individual shareholder level and not the corporate level. A
larger portion of the combined revenue of the companies was sheltered in the
real estate companies for the 1996 fiscal year compared to the prior fiscal
year.
INFLATIONARY FACTORS
The health care industry is labor intensive. General operating
expenses related to personnel, such as salaries and employee benefits, as
well as expenses of dietary, medical and other supplies, are subject to
normal inflationary factors. The Companies' response to such pressures has
been to concurrently increase rates charged private paying patients. Any
cost increases billed under Medicare are paid for at year-end as a part of
the annual cost reimbursement settlement. Reimbursement of increased
expenses from Medicaid may lag for up to 18 months. Although the Companies
attempt to implement rate increases to compensate for increases in operating
expenses, there can be no assurance that the Companies will always be able to
do so in the future, which could adversely affect operations.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
Overview. As of June 30, 1997 the Companies had approximately
$2,320,000 in cash and cash equivalents and net working capital of
approximately $1,928,000. The increase in cash of $83,000 is the result of
cash from operations aggregating $3,932,000, up from $3,174,000 in 1996, cash
from investing activities of $867,000 (the majority of which was from
payments on notes with Rosewood Care Center Holding Co.) and cash used in
financing activities of $4,716,000 (which is comprised of debt retirement
aggregating $1,698,000 and payment of dividends aggregating $3,018,000).
On October 21, 1993 the Companies refinanced their long term debt with
the REMIC which issued $33,000,000 of its 7-1/4% First Mortgage Redeemable
Bonds due November 1, 2013. Proceeds from the sale of the bonds were used to
pay off the Companies' existing debt with a number of banks and to pay the
loan costs, including issuance costs of the bonds. Per the terms of the loan
documents, a reserve fund in the form of an irrevocable letter of credit in
the amount of approximately $3,130,000 from a commercial bank rated "AA" has
been established. The letter of credit is secured by cash and investments of
Rosewood Care Center Holding Co. Remaining loan proceeds, net of loan costs,
were loaned to an affiliate, Rosewood Care Center Holding Co., under
unsecured promissory notes bearing interest at 7-1/4% per annum and having
maturities of December 1999. The Companies are not contemplating nor aware
of any significant replacement of equipment and property beyond comparable
amounts expended in 1996 and 1997 because the facilities are all of recent
construction, with an average age of eight years.
The Companies believe they have adequate capital for operations and
replacements for the coming year and the foreseeable future.
Accounts Receivable. Private paying patients are billed monthly at the
beginning of the month for that month's routine nursing care charges.
Charges for ancillary services are billed monthly in arrears. Accounts
receivable from private paying patients decreased to $1,178,000 as of June
30, 1997, compared to $1,257,000 as of June 30, 1996. The amounts allowed
for doubtful accounts aggregated $224,000 and $206,000 for 1997 and 1996
respectively, which is 15.9% and 14.1% of the outstanding balances. Accounts
receivable from third parties increased to $3,409,000 as of June 30, 1997,
compared with $3,001,000 as of June 30, 1996. $1,963,000 of this is due from
Medicare for unsettled Medicare Cost Reports filed for the fiscal year ended
June 30, 1997, which are subject to audit by the third party payor.
$1,623,000 of this amount was received subsequent to the end of the 1997
fiscal year. With the Medicare program facing intense scrutiny and
significant cutbacks, the Companies have experienced closer scrutiny of their
Medicare cost reports and delays with regard to payment of claims. An
additional effect of Medicare's delay has been delay of co-payment amounts
received from private payors. Management does not presently anticipate any
cash flow shortages during the next fiscal year, despite the increase in the
amounts due from Medicare, unless Medicare administration and payment terms
significantly further deteriorate.
The Companies had no open lines of credit with any financial
institution as of June 30, 1997.
Governmental funding for health care programs continues to be under
pressure. Health care funding was again a prominent issue in the United
States Congress during the past year. Proposals continue to be put forth
which seek to reduce the costs of the Medicare and Medicaid programs by
lowering the utilization of the programs and by controlling costs within the
programs.
18
<PAGE> 19
In August 1996, Congress passed the Health Insurance Portability and
Accountability Act of 1996, which provides favorable changes in tax treatment
of long term care insurance. It allows inclusion of long-term insurance in
medical savings accounts. Although the Companies believe the legislation
will have a favorable impact on the long-term care industry, the full effect
is not readily determinable. The Companies can make no assurances as to the
ultimate impact of this, or any future health care legislation on the
Companies' financial position, results of operations or cash flows. Due to
the current national environment surrounding health care, the Companies
believe they will experience future problems relating to reimbursement, some
of which could have a significant effect on operations.
The Companies continue to monitor legislative and other health care
developments and will attempt to structure contractual arrangements to
minimize the impact of reductions in government reimbursement. However,
changes in the reimbursement policies of Medicare and Medicaid as a result of
budget cuts by federal and state governments or other legislative actions
could have a significant adverse effect on the results of operations and cash
flow of the Companies.
THE REMIC
The REMIC is purely a pass-through entity and has no resources and no
operations other than those arising out of the first mortgage loans and the
bonds. All of the payments on the first mortgage loans are used to pay the
obligations on the 7 1/4% First Mortgage Redeemable Bonds due November 1,
2013. All expenses of the offering and the administration of the Trust
Indenture executed as of October 1, 1993 pursuant to which the bonds were
issued are the responsibility of the Companies.
19
<PAGE> 20
ITEM 8. COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
1. ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
Report of Rubin, Brown, Gornstein & Co. 21
Balance Sheet 22
Statement of Operations 23
Statement of Cash Flows 24
Notes to Financial Statements 25
2. ROSEWOOD CARE CENTER COMPANIES
Rosewood Care Center, Inc. of Swansea
Rosewood Care Center, Inc. of Galesburg
Rosewood Care Center, Inc. of East Peoria
Rosewood Care Center, Inc. of Peoria
Rosewood Care Center, Inc. of Alton
Rosewood Care Center, Inc. of Moline
Swansea Real Estate, Inc.
Galesburg Real Estate, Inc.
East Peoria Real Estate, Inc.
Peoria Real Estate, Inc.
Alton Real Estate, Inc.
Moline Real Estate, Inc.
Report of Rubin, Brown, Gornstein & Co. 30
Combined Balance Sheet 31
Combined Statement of Operations 33
Combined Statement of Stockholders' Equity 34
Combined Statement of Cash Flows 35
Notes to Combined Financial Statements 36
3. ROSEWOOD CARE CENTER COMPANIES FINANCIAL STATEMENT SCHEDULE
Report of Rubin, Brown, Gornstein & Co. LLP 51
Schedule VIII Valuation and Qualifying Accounts 52
20
<PAGE> 21
[Letterhead of RBG&CO.]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
Rosewood Care Centers
Capital Funding Corporation
We have audited the accompanying balance sheet of Rosewood Care Centers
Capital Funding Corporation as of June 30, 1996 and 1997 and the statements
of operations and cash flows for the years ended June 30, 1995, 1996 and
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rosewood Care Centers
Capital Funding Corporation as of June 30, 1996 and 1997 and the results of
its operations and cash flows for the years ended June 30, 1995, 1996 and
1997, in conformity with generally accepted accounting principles.
/s/ Rubin, Brown, Gornstein & Co. LLP
September 12, 1997
21
<PAGE> 22
<TABLE>
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- ------------------------------------------------------------------------------------
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<CAPTION>
ASSETS
JUNE 30,
----------------------------
1996 1997
----------------------------
<S> <C> <C>
Cash and cash equivalents $ 262 $ 1
Mortgage notes receivable, Rosewood
Companies 29,280 27,581
Accrued interest receivable -- 167
- ------------------------------------------------------------------------------------
$ 29,542 $ 27,749
====================================================================================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
LIABILITIES
First Mortgage Redeemable Bonds $ 29,363 $ 27,581
Accrued expenses 178 167
- ------------------------------------------------------------------------------------
TOTAL LIABILITIES 29,541 27,748
STOCKHOLDERS' EQUITY
Common stock:
Authorized 30,000 shares of $1 par value; issued
and outstanding 1,000 shares at issue price 1 1
- ------------------------------------------------------------------------------------
$ 29,542 $ 27,749
====================================================================================
- ------------------------------------------------------------------------------------
See the accompanying notes to financial statements.
</TABLE>
22
<PAGE> 23
<TABLE>
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- -------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<CAPTION>
FOR THE YEARS
ENDED JUNE 30,
-----------------------------------------------
1995 1996 1997
-----------------------------------------------
<S> <C> <C> <C>
Interest income $ 2,299 $ 2,183 $ 2,057
Interest expense (2,299) (2,183) (2,057)
- -------------------------------------------------------------------------------------------
Net income $ -- $ -- $ --
===========================================================================================
- -------------------------------------------------------------------------------------------
See the accompanying notes to financial statements.
</TABLE>
23
<PAGE> 24
<TABLE>
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- --------------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<CAPTION>
FOR THE YEARS
ENDED JUNE 30,
------------------------------------------------
1995 1996 1997
------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ -- $ -- $ --
Adjustments to reconcile net income to net cash
used in operating activities:
Increase in accrued interest receivable -- -- (167)
Decrease in accrued expenses (10) (10) (11)
- --------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (10) (10) (178)
CASH FLOWS FROM INVESTMENT ACTIVITIES
Repayments of mortgage notes receivable 1,551 1,667 1,699
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of First Mortgage Redeemable Bonds (1,542) (1,657) (1,782)
- --------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (1) -- (261)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 263 262 262
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 262 $ 262 $ 1
========================================================================================================
- --------------------------------------------------------------------------------------------------------
See the accompanying notes to financial statements.
</TABLE>
24
<PAGE> 25
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY AND NATURE OF ACTIVITY
Rosewood Care Centers Capital Funding Corporation was formed as
a "single purpose entity" to function as a Real Estate Mortgage
Investment Conduit (REMIC). Accordingly, the articles of
incorporation restrict the activities to issuance of bonds, making
of mortgage loans and related activities.
Rosewood Care Centers Capital Funding Corporation (the "REMIC")
is the issuer of the First Mortgage Redeemable Bonds. The Bond
proceeds were lent to certain Rosewood Care Center real estate
companies. The real estate companies are referred to as the
"Borrowing Companies."
Each of the real estate companies is 100% owned by the two
stockholders who own Rosewood Care Centers Capital Funding
Corporation in like ratios.
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing
financial statements. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses.
CASH EQUIVALENTS
The Company considers all investments purchased with maturities
of three months or less to be cash equivalents.
INCOME TAXES
Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level income
taxes. The net income or net loss of a REMIC is reported on the tax
returns of the holders of its residual interest who are also the two
stockholders of the real estate companies. The Bonds are designated
"regular interests" and are generally taxable as debt of the REMIC.
- --------------------------------------------------------------------------------
25
<PAGE> 26
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
2. MORTGAGE NOTES RECEIVABLE
The mortgage notes evidence the loans in the original amount of
$33,000,000 from the REMIC to the real estate companies and are cross
collateralized by a security agreement and assignment of management
agreement from each facility company and a first mortgage which
includes a security interest in fixtures, improvements, and other
personal property, assignment of rents and leases, collateral pledge
and security agreement and subordination and attornment agreements
from each real estate company. In addition, compensation of officers
or directors of the real estate companies is subordinated to payments
under the loan agreement. The mortgage notes bear interest at 7.25%.
The facility companies and the real estate companies are referred to
together as the "Companies."
The mortgage notes from the real estate companies require
monthly principal and interest collections of $260,824 plus an
additional annual principal collection of $720,000 for the first
seven years, subject to certain conditions in the loan agreement. If
all additional annual collections are made, the principal of the
mortgage notes will be collected as follows:
<TABLE>
<CAPTION>
ADDITIONAL
YEARS ENDING ANNUAL
JUNE 30, TOTAL SCHEDULED COLLECTIONS
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 2,020,810 $ 1,300,810 $ 720,000
1999 2,071,044 1,351,044 720,000
2000 2,226,282 1,506,282 720,000
2001 2,393,161 1,673,161 720,000
2002 1,821,541 1,821,541 --
Thereafter 17,048,618 17,048,618 --
-------------------------------------------------------------------------------------
$ 27,581,456 $ 24,701,456 $ 2,880,000
=====================================================================================
</TABLE>
The Borrowing Companies are required to make the additional
annual principal payments up to $720,000 per year to the extent the
amount of cash available exceeds net income available for debt
service (income from operations plus depreciation and amortization,
incentive management fees, interest income, and officer bonuses) for
the prior fiscal year less (a) the regular principal and interest
payments for that year, (b) the amount necessary to pay income taxes
of the obligated companies and their shareholders, (c) any increase
in accounts receivable from third party payors, (d) interest income
from related parties and (e) the $1,000,000 cash or cash equivalents
required to be maintained by the loan agreement.
- --------------------------------------------------------------------------------
26
<PAGE> 27
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
The failure of any real estate company to meet the required
additional annual principal payments is not an event of default, but
the deficit is cumulative to the extent any annual payment is less
than $720,000. The difference is carried forward, at which time such
real estate company is subject to certain covenants which restrict
its ability to pay out officer bonuses, dividends and incentive
management fees until the additional annual payment, on a cumulative
basis, is paid in full.
The Loan Agreement also contains certain covenants relating to
the consolidation of companies, restrictions on indebtedness,
transfers of property, expansion of facilities, and the commingling
of funds.
Bond issuance costs of $609,000 and underwriter's discount of
$841,500 (aggregating $1,450,500) were paid by the REMIC on behalf
of the real estate companies from the proceeds of the First Mortgage
Redeemable Bonds.
The Companies have established with a trustee a 12-month debt
service reserve fund consisting of a bank letter of credit for
$3,129,889. The trustee is the custodian of the reserve fund.
3. FIRST MORTGAGE REDEEMABLE BONDS
The bonds are dated October 21, 1993 and bear interest at
7.25%. The Bonds are secured by first mortgage liens, assignments
of rents and leases, collateral pledge and security agreements,
subordination and attornment agreements from each real estate
company, a security agreement, and assignment of management agreement
from each facility company and are scheduled to mature November 1,
2013. However, if all the additional annual payments are made as
required, the bonds will be paid in full in July 2009. The
application of bond proceeds, tender and purchase of bonds,
redemption of bonds and other covenants are defined in the trust
indenture.
All bond holders receive scheduled monthly principal and
interest payments and may receive additional annual principal
payments during the first seven years of the bond amortization, if
additional annual payments are received on the mortgage notes (See
Note 2).
- --------------------------------------------------------------------------------
27
<PAGE> 28
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
Principal payments in the years subsequent to June 30, 1997 are
approximately as follows:
<TABLE>
<CAPTION>
YEARS ENDING ADDITIONAL
JUNE 30, TOTAL SCHEDULED ANNUAL
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 1,915,050 $ 1,195,050 $ 720,000
1999 2,058,606 1,338,606 720,000
2000 2,212,914 1,492,914 720,000
2001 2,378,790 1,658,790 720,000
2002 1,810,601 1,810,601 --
Thereafter 17,205,495 17,205,495 --
-------------------------------------------------------------------------------------
$ 27,581,456 $ 24,701,456 $ 2,880,000
=====================================================================================
</TABLE>
4. STOCKHOLDERS' EQUITY
Stockholders' equity consists of the following investments:
<TABLE>
<S> <C>
Larry Vander Maten Revocable Trust $ 750
Darrell Hoefling Revocable Trust 250
-----------------
$ 1,000
=================
</TABLE>
Each share of common stock has been designated as a
"Certificate of Residual Interest".
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the
short maturity of those instruments.
- --------------------------------------------------------------------------------
28
<PAGE> 29
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
MORTGAGE NOTES RECEIVABLE
The fair value of the note receivable is estimated based on
discounted future cash flows using current rates at which similar
loans would be made to related borrowers for the same remaining
maturities.
FIRST MORTGAGE REDEEMABLE BONDS
The fair value of the Company's first mortgage redeemable bonds
is estimated based on discounted future cash flows at the current
rates at which the Company could borrow funds with similar terms,
degree of risk and remaining maturities.
Estimated fair values of the Company's financial instruments,
all of which are held for nontrading purposes, are as follows:
<TABLE>
<CAPTION>
1997
------------------------------------
CARRYING FAIR
AMOUNT VALUE
------------------------------------
<S> <C> <C>
Mortgage notes receivable $ 27,581,456 $ 26,264,000
First mortgage redeemable bonds 27,581,456 26,264,000
</TABLE>
The estimated fair value amounts presented herein have been
determined using available market information and appropriate
valuation methodologies and are not necessarily indicative of the
amounts the Company could realize in a current market exchange.
- --------------------------------------------------------------------------------
29
<PAGE> 30
[Letterhead of RBG&CO.]
INDEPENDENT AUDITORS' REPORT
To the Boards of Directors
and Stockholders of
Rosewood Care Center Facility Companies
Rosewood Real Estate Companies
St. Louis, Missouri
We have audited the accompanying combined balance sheet of Rosewood Care
Center Facility Companies and Real Estate Companies (see Note 1 of Notes to
Combined Financial Statements) as of June 30, 1996 and 1997 and the combined
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1995, 1996 and 1997. These combined financial statements are
the responsibility of the management of the Companies. Our responsibility
is to express an opinion on these combined financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to in the first
paragraph present fairly, in all material respects, the combined financial
position of Rosewood Care Center Facility Companies and Real Estate Companies
as of June 30, 1996 and 1997 and the combined results of operations and the
combined cash flows for the years ended June 30, 1995, 1996 and 1997 in
conformity with generally accepted accounting principles.
/s/ Rubin, Brown, Gornstein & Co. LLP
September 12, 1997
30
<PAGE> 31
<TABLE>
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------------
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
PAGE 1 OF 2
<CAPTION>
ASSETS
JUNE 30,
---------------------------
1996 1997
---------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,237 $ 2,320
Accounts receivable - residents, net of allowance
for doubtful accounts of $206 and $224, respectively 1,257 1,178
Accounts receivable - third party payors 3,001 3,409
Interest receivable 326 256
Prepaid insurance and other prepaids 74 43
Deferred income tax benefits 65 75
- --------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 6,960 7,281
- --------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 943 943
Site improvements 2,101 2,140
Buildings 17,830 17,830
Equipment 3,636 3,702
Leasehold improvements 272 322
- --------------------------------------------------------------------------------------
24,782 24,937
Less: Accumulated depreciation 6,435 7,370
- --------------------------------------------------------------------------------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 18,347 17,567
- --------------------------------------------------------------------------------------
OTHER ASSETS
Notes receivable from Rosewood Care Center
Holding Co. 8,056 7,034
Amortizable costs, net 1,094 965
- --------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 9,150 7,999
- --------------------------------------------------------------------------------------
$ 34,457 $ 32,847
======================================================================================
- --------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
</TABLE>
31
<PAGE> 32
<TABLE>
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------------
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
PAGE 2 OF 2
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30,
---------------------------
1996 1997
---------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,792 $ 2,021
Accounts payable - trade 1,136 1,083
Dividends payable 614 543
Accrued expenses:
Salaries and payroll taxes 438 470
Vacation and employee fringes 124 244
Real estate taxes 480 510
Accrued interest -- 167
Management fees - affiliate 464 265
Income taxes 88 50
- --------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,136 5,353
- --------------------------------------------------------------------------------------
LONG-TERM DEBT
Notes payable - Rosewood Care Centers Capital Funding
Corporation 29,279 27,581
Less: Current maturities 1,792 2,021
- --------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT 27,487 25,560
- --------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 65 65
Paid-in capital 481 481
Retained earnings 1,288 1,388
- --------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,834 1,934
- --------------------------------------------------------------------------------------
$ 34,457 $ 32,847
======================================================================================
- --------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
</TABLE>
32
<PAGE> 33
<TABLE>
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- -----------------------------------------------------------------------------------------------------
COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------------------
1995 1996 1997
------------------------------------------
<S> <C> <C> <C>
PATIENT SERVICE REVENUE
Private $ 16,827 $ 17,079 $ 17,808
Medicare 7,443 9,293 10,142
Medicaid 1,495 1,319 1,494
Other patient revenues, net of expenses 74 62 76
- -----------------------------------------------------------------------------------------------------
TOTAL PATIENT REVENUES, NET OF EXPENSES 25,839 27,753 29,520
- -----------------------------------------------------------------------------------------------------
FACILITY EXPENSES
Administrative expenses 924 851 1,004
Employee fringe benefits 1,806 1,774 2,251
Dietary 1,733 1,784 1,897
Nursing 6,556 6,518 7,090
Ancillary services 2,734 4,560 4,978
Plant utilities and maintenance 1,024 1,121 1,186
Housekeeping and laundry 814 851 924
Social service and activities 459 550 646
- -----------------------------------------------------------------------------------------------------
TOTAL FACILITY EXPENSES 16,050 18,009 19,976
- -----------------------------------------------------------------------------------------------------
INCOME AFTER FACILITY EXPENSES 9,789 9,744 9,544
- -----------------------------------------------------------------------------------------------------
NONFACILITY EXPENSES
Real estate taxes and insurance 550 586 564
Base management fees 792 792 792
Illinois Medicaid assessments 394 394 394
Depreciation and amortization 1,036 1,057 1,065
- -----------------------------------------------------------------------------------------------------
TOTAL NONFACILITY EXPENSES 2,772 2,829 2,815
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCENTIVES 7,017 6,915 6,729
INCENTIVE MANAGEMENT FEES (2,041) (1,979) (1,848)
OFFICERS' BONUSES (180) (188) (192)
- -----------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 4,796 4,748 4,689
- -----------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 852 816 685
Interest expense (2,299) (2,183) (2,057)
- -----------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (1,447) (1,367) (1,372)
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 3,349 3,381 3,317
INCOME TAX EXPENSE (336) (306) (270)
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 3,013 $ 3,075 $ 3,047
=====================================================================================================
- -----------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
</TABLE>
33
<PAGE> 34
<TABLE>
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------------------------------------------------
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<CAPTION>
COMMON STOCK TOTAL
---------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - June 30, 1994 65,000 $ 65 $ 481 $ 838 $ 1,384
Net Income -- -- -- 3,013 3,013
Dividends Declared -- -- -- (2,819) (2,819)
- -------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1995 65,000 65 481 1,032 1,578
Net Income -- -- -- 3,075 3,075
Dividends Declared -- -- -- (2,819) (2,819)
- -------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1996 65,000 65 481 1,288 1,834
Net Income -- -- -- 3,047 3,047
Dividends Declared -- -- -- (2,947) (2,947)
- -------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1997 65,000 $ 65 $ 481 $ 1,388 $ 1,934
=========================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
</TABLE>
34
<PAGE> 35
<TABLE>
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------
1995 1996 1997
-------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,013 $ 3,075 $ 3,047
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of equipment 2 -- --
Depreciation 903 925 936
Amortization 133 132 129
Change in assets and liabilities:
(Increase) decrease in accounts receivable - residents 135 (552) 79
Increase in accounts receivable - third party
payors (585) (806) (408)
(Increase) decrease in other receivables, prepaids
and deferred income tax benefit (60) 26 90
Increase (decrease) in accounts payable - trade 135 481 (53)
Increase in accrued salaries, taxes and fringes 45 111 152
Increase (decrease) in accrued real estate taxes 29 (63) 30
Decrease in accrued management fees (30) (73) (199)
Increase (decrease) in other payables and accruals 107 (82) 129
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,827 3,174 3,932
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (171) (159) (155)
Net receipts on notes with Rosewood Care Center
Holding Co. 24 1,276 1,022
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (147) 1,117 867
- -------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayments of notes with Rosewood Care Centers
Capital Funding (1,551) (1,667) (1,698)
Dividends paid (2,642) (2,909) (3,018)
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,193) (4,576) (4,716)
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (513) (285) 83
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 3,035 2,522 2,237
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,522 $ 2,237 $ 2,320
===================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 2,299 $ 2,183 $ 1,890
Income taxes paid 184 190 313
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
</TABLE>
35
<PAGE> 36
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY AND OPERATIONS
The combined financial statements include the accounts of six
facility companies (C Corporations) and their six related real estate
companies (S Corporations).
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------------------------
SHARES
----------------------------
ISSUED AND
AUTHORIZED OUTSTANDING PAR AMOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
FACILITY COMPANIES:
Rosewood Care Center, Inc. of -
Swansea 100,000 500 No par $ 500
Galesburg 100,000 500 No par 500
Alton 30,000 500 $1 500
Peoria 30,000 500 1 500
East Peoria 30,000 500 1 500
Moline 30,000 500 1 500
REAL ESTATE COMPANIES:
Swansea Real Estate, Inc. 30,000 30,000 $1 30,000
Galesburg Real Estate, Inc. 30,000 30,000 1 30,000
Alton Real Estate, Inc. 30,000 500 1 500
Peoria Real Estate, Inc. 30,000 500 1 500
East Peoria Real Estate, Inc. 30,000 500 1 500
Moline Real Estate, Inc. 30,000 500 1 500
-----------------------------------------------------------------------------------------------------------------
500,000 65,000 $ 65,000
=================================================================================================================
</TABLE>
The facility companies are wholly-owned subsidiaries of
Rosewood Care Center Holding Co. ("Rosewood Holding Company").
Rosewood Holding Company and the real estate companies are under
common control. The facility companies and the real estate companies
are referred to together as the "Companies."
The real estate companies own the real estate and equipment and
lease the facilities to the affiliated facility companies.
- --------------------------------------------------------------------------------
36
<PAGE> 37
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
The facility companies provide convalescent care, long-term
care, and rehabilitative services primarily to elderly patients in
their facilities in Illinois. Revenues are collected from the
patients, their families, their insurance companies or from third
party payors. Collections from the state third-party payor are in
arrears as a result of budgetary limitations.
All material intercompany balances and transactions between
the Companies have been eliminated in combining the financial
statements.
Other similarly owned facility companies and real estate
companies have been excluded from these combined statements because
they are not borrowers or guarantor companies in connection with
mortgage loans from Rosewood Care Centers Capital Funding
Corporation.
HISTORY OF OPERATIONS AND BUSINESS ACTIVITY
Each facility company is licensed as a skilled nursing facility
by the state of Illinois.
<TABLE>
<CAPTION>
LOCATION DATE LICENSED
------------------------------------------------------------
<S> <C>
Swansea, Illinois October 8, 1987
Galesburg, Illinois December 9, 1987
Alton, Illinois May 15, 1989
Peoria, Illinois June 12, 1989
East Peoria, Illinois April 18, 1989
Moline, Illinois May 6, 1990
</TABLE>
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing
financial statements. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses.
ACCOUNTING BASIS
The Companies present their financial statements on the accrual
basis in accordance with generally accepted accounting principles and
in accordance with the Audit and Accounting Guide, Audits of
Providers of Health Care Services, issued by the American Institute
of Certified Public Accountants.
- --------------------------------------------------------------------------------
37
<PAGE> 38
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
PATIENT SERVICE REVENUE
Patient service revenue is reported at the estimated net
realizable amounts from residents, third-party payors and others for
services rendered, including estimated retroactive adjustments.
Revenue under federal and state third-party payor agreements is
subject to audit and retroactive adjustment. Provisions for
estimated federal and state third-party payor settlements are
provided in the period the related services are rendered.
Differences between the estimated amounts accrued and interim and
final settlements are reported in operations in the year of
settlement.
Accounts receivable - third party payor is comprised of amounts
due from the state Medicaid and Federal Medicare Program for services
provided to residents eligible for participation in those programs.
Also included is an estimate for the settlement of the cost report to
be submitted for the year ended June 30, 1997.
ILLINOIS MEDICAID ASSESSMENT PLAN PAYMENTS
Effective July 1, 1993, a nursing home licensing fee of $1.50
per licensed bed day was imposed by the State of Illinois. The
nursing home license fee for the years ended June 30, 1997, 1996 and
1995 was $394,200 for each year.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are carried at cost. Depreciation is
computed on the straight-line method for financial reporting purposes
as follows:
<TABLE>
<CAPTION>
DEPRECIABLE
LIVES
-----------------
<S> <C>
Site improvements 25 years
Buildings 40 years
Equipment 10 years
Leasehold improvements 7 years
</TABLE>
- --------------------------------------------------------------------------------
38
<PAGE> 39
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
AMORTIZABLE COSTS
Amortizable costs consist of bond issuance costs of $609,000
and underwriters discount of $841,500 which are being amortized over
the term of the bond issue, on the interest method. Amortization
expense aggregated $129,120 in 1997 and $131,553 in 1996.
<TABLE>
<CAPTION>
1996 1997
---------------------------------
<S> <C> <C>
Amortizable costs $ 1,450,500 $ 1,450,500
Less: Accumulated amortization 356,142 485,262
--------------------------------------------------------------------
$ 1,094,358 $ 965,238
====================================================================
</TABLE>
INCOME TAXES
The six facility companies file a consolidated return with
Rosewood Holding Company and its other facility companies. Income
taxes are allocated to each facility based on its proportionate share
of net income. The six real estate companies file separate S
Corporation returns.
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes (for the facility companies) related
primarily to differences between the basis of accounts receivable and
property, plant and equipment for financial and income tax reporting.
The deferred tax assets represent the future tax return consequences
of those differences, which will be deductible when the liabilities
are settled.
CASH EQUIVALENTS
The Companies consider all investments purchased with maturities of
three months or less to be cash equivalents.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
- --------------------------------------------------------------------------------
39
<PAGE> 40
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
2. RELATED PARTY TRANSACTIONS
Related party interest is as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------
1996 1997
------------------------------------
<S> <C> <C>
Interest receivable $ 326,352 $ 256,378
==================================================================================================
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------------------
1995 1996 1997
--------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 696,599 $ 702,600 $ 574,504
Interest expense 2,298,852 2,182,867 2,057,611
</TABLE>
The facility companies pay a management fee to HSM Management
Services, Inc., which is 100% owned by Rosewood Holding Company for
certain management functions as specified in the management
agreements. An annual base fee of $1,100 per licensed bed is payable
monthly plus additional incentive fees.
Incentive management fees are based on income from the nursing
home operations before income taxes and incentive management fees
(base income) of the combined group. The combined base income from
the nursing home operations is multiplied by, on a graduated basis,
various percentages with the maximum percentage of 75% applied to
combined base income over $100,000. The base plus incentive
management fee is limited to 15% of patient service revenue, by
location.
Rosewood Holding Company, as licensee, grants the subsidiary
facility companies a nonexclusive right to the use of the service
mark "Rosewood Care Center" for an annual fee of $3,000 for each
location. The total amount paid for 1995, 1996 and 1997 aggregated
$18,000 for each year.
- --------------------------------------------------------------------------------
40
<PAGE> 41
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
3. NOTES RECEIVABLE FROM HOLDING COMPANY
At the closing on the issuance of Rosewood Care Centers
Capital Funding Corporation's (the REMIC) 7-1/4% First Mortgage
Redeemable Bonds due November 1, 2013, $4,369,000 in excess proceeds
were loaned to Rosewood Holding Company pursuant to notes to each
Borrowing Company bearing interest at 7-1/4% per annum and having
maturities of October 1996. Prior to their maturity, these notes
were replaced with new notes having the same credit terms and
maturing in December 1999. In addition, Rosewood Holding Company
delivered notes for outstanding indebtedness to the Borrowing
Companies in the aggregate principal amount of $2,686,000. These
notes bore interest at 7% and matured December 31, 1997. In December
1993, Rosewood Holding Company obtained a letter of credit which was
deposited with the Trustee of the Trust Indenture into the debt
service reserve fund for the benefit of holders of the REMIC's 7-1/4%
First Mortgage Redeemable Bonds due November 1, 2013. Cash of
approximately $3,130,000 which was being held in the debt service
reserve fund was then loaned to Rosewood Holding Company pursuant to
3-year notes bearing interest at 7-1/4% per annum. Thereafter, loans
of excess cash to Rosewood Holding Company were made pursuant to a
series of 3-year notes bearing interest at 7-1/4% per annum. As of
June 30, 1994, all of the notes except for the notes signed at the
bond closing (totalling $4,369,000) were cancelled and replaced with
six (6) new revolving credit notes. As of June 30, 1996, those notes
were cancelled and replaced with new revolving credit notes which
allow Rosewood Holding Company to borrow, pursuant to the revolving
credit notes an aggregate of up to $9,100,000 from the Borrowing
Companies. The new revolving credit notes also bear interest at a
rate of 7-1/4% per annum and mature December 31, 1999. The
outstanding balance of the notes signed at the bond closing was
$3,485,000 at June 30, 1996 and $2,841,097 at June 30, 1997. The
outstanding balance of the revolving credit notes was $4,570,448 at
June 30, 1996 and $4,192,615 at June 30, 1997. All of the notes from
Rosewood Holding Company to the Borrowing Companies are pledged to
the Trustee under the Trust Indenture as additional collateral
security for repayment of the REMIC's 7-1/4% First Mortgage
Redeemable Bonds due November 1, 2013.
- --------------------------------------------------------------------------------
41
<PAGE> 42
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
4. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1996 1997
-------------------------------------
<S> <C> <C>
NOTES PAYABLE - RELATED PARTIES:
Notes payable - Rosewood Care Centers Capital
Funding Corporation, payable in monthly installments
of $260,824 plus an additional principal payment of
$720,000 due annually on December 1, 1994 through
December 1, 2000, interest at 7-1/4% per year, with
final payment due November 1, 2013 $ 29,279,548 $ 27,581,456
===========================================================================================
</TABLE>
The notes payable to Rosewood Care Centers Capital Funding
Corporation evidence the loans from the REMIC to the real estate
companies and are cross collateralized by a security agreement and
assignment of management agreement from each facility company and a
first mortgage which includes a security interest in fixtures,
improvements, and other personal property, assignment of rents and
leases, collateral pledge and security agreement and subordination
and attornment agreements from each real estate company. In
addition, compensation of officers or directors of the real estate
companies is subordinated to payments under the loan agreement.
The Borrowing Companies will be required to make the
additional annual payments up to $720,000 per year to the extent the
amount of cash available exceeds net income available for debt
service (income from operations plus depreciation and amortization,
incentive management fees, interest income, and officer bonuses) for
the prior fiscal year less (a) the regular principal and interest
payments for that year, (b) the amount necessary to pay income taxes
of the Companies as if they were all taxed as C Corporations for
income tax purposes, (c) any increase in accounts receivable from
third party payors and (d) interest income from related parties. In
addition, the Companies are required to maintain a minimum cash
balance of $1,000,000.
The failure of any real estate company to meet the required
additional annual principal payments is not an event of default, but
the deficit is cumulative to the extent any annual payment is less
than $720,000. The difference is carried forward, at which time such
real estate company is subject to certain covenants which restrict
its ability to pay out officer bonuses, dividends and incentive
management fees until the additional annual payment, on a cumulative
basis, is paid in full.
- --------------------------------------------------------------------------------
42
<PAGE> 43
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
The Loan Agreement also contains certain covenants relating
to the consolidation of companies, restrictions on indebtedness,
transfers of property, expansion of facilities, and the commingling
of funds.
The Companies have established with a trustee a 12-month
debt service reserve fund consisting of a bank letter of credit for
$3,129,889. The trustee is the custodian of the reserve fund.
The scheduled maturities of long-term debt at June 30, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------------
<S> <C>
1998 $ 2,020,810
1999 2,071,044
2000 2,226,282
2001 2,393,161
2002 1,821,541
Thereafter 17,048,618
------------------------------------------------
$ 27,581,456
================================================
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments:
NOTES RECEIVABLE FROM ROSEWOOD CARE CENTER HOLDING CO.
It was not practicable to estimate the fair value of the notes
receivable from Rosewood Care Center Holding Co. because of the
uncertainty of future cash flows to be paid for interest and
principal. Information pertinent to estimating the fair values is
disclosed in Note 3.
FIRST MORTGAGE REDEEMABLE BONDS
The fair value of the Company's first mortgage redeemable
bonds is estimated based on discounted future cash flows at the
current rates at which the Company could borrow funds with similar
terms, degree of risk and remaining maturities.
- --------------------------------------------------------------------------------
43
<PAGE> 44
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Estimated fair values of the Company's financial instruments,
all of which are held for nontrading purposes, are as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------
CARRYING FAIR
AMOUNT VALUE
----------------------------------------
<S> <C> <C>
Notes receivable from Rosewood Care
Center Holding Co. $ 7,033,712 Not estimated
Long-term debt 27,581,456 $ 26,264,000
</TABLE>
The estimated fair value amounts presented herein have been
determined using available market information and appropriate
valuation methodologies and are not necessarily indicative of the
amounts the Company could realize in a current market exchange.
6. INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax expense $ 1,138,700 $ 973,700 $ 1,104,800
State income taxes 201,000 171,800 199,000
Portion of "expected" tax on
S Corporation earnings for which tax
will be paid at the individual level (1,003,700) (839,500) (1,033,800)
--------------------------------------------------------------------------------------------------------
Income taxes $ 336,000 $ 306,000 $ 270,000
========================================================================================================
Current $ 343,500 $ 333,300 $ 274,500
Deferred (7,500) (27,300) (4,500)
--------------------------------------------------------------------------------------------------------
$ 336,000 $ 306,000 $ 270,000
========================================================================================================
</TABLE>
FACILITY COMPANIES
The facility companies provide for deferred taxes on temporary
differences between amounts reported for financial statement and
income tax purposes of the facility companies, which are taxed under
Subchapter C of the Internal Revenue Code of 1986. The estimated tax
effect of each temporary difference is as follows:
- --------------------------------------------------------------------------------
44
<PAGE> 45
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
<TABLE>
<CAPTION>
1996 1997
--------------------------------
<S> <C> <C>
Allowance for doubtful accounts $ 82,600 $ 89,600
Book versus tax difference between basis
of property, plant and equipment 18,100 14,600
--------------------------------------------------------------------------------
$ 64,500 $ 75,000
================================================================================
</TABLE>
REAL ESTATE COMPANIES
The real estate companies do not provide for deferred taxes on
temporary differences between financial statement and income tax
depreciation expense on the real estate companies which are taxed
under Subchapter S of the Internal Revenue Code of 1986. The shorter
recovery periods, as prescribed by tax law, which result in lower
taxable income, pass through to the individual shareholder level.
Income of the real estate companies is taxed at the individual
shareholder level and not at the corporate level.
7. DIVIDENDS
Dividends declared were as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------------------- ----------------------------------------
PER SHARE AGGREGATE PER SHARE AGGREGATE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FACILITY COMPANIES:
Rosewood Care Center, Inc. of:
Swansea $ 185.80 $ 92,900 $ 209.20 $ 104,600
Galesburg 94.20 47,100 102.80 51,400
Alton 227.60 113,800 225.20 112,600
Peoria 122.00 61,000 90.00 45,000
Moline 136.20 68,100 166.00 83,000
East Peoria 8.60 4,300 -- --
REAL ESTATE COMPANIES:
Swansea Real Estate, Inc. 15.05 451,400 17.23 516,800
Galesburg Real Estate, Inc. 13.54 406,100 15.78 473,400
Alton Real Estate, Inc. 1,037.20 518,600 1,074.60 537,300
Peoria Real Estate, Inc. 795.80 397,900 671.80 335,900
East Peoria Real Estate, Inc. 474.00 237,000 403.20 201,600
Moline Real Estate, Inc. 842.40 421,200 971.40 485,700
----------------- -----------------
$ 2,819,400 $ 2,947,300
================= =================
</TABLE>
- --------------------------------------------------------------------------------
45
<PAGE> 46
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
8. LITIGATION
The Companies, from time to time, are involved in litigation in
the ordinary course of business including disputes involving
management contracts, patient services, employment claims and
construction matters. The Companies are also involved in routine
administrative and judicial proceedings regarding permits and
expenses. The Companies are not a party to any lawsuit or proceeding
which, in the opinion of management, is not adequately covered by
insurance or which is, individually or in the aggregate, likely to
have a material adverse effect on the combined financial position or
results of operations of the Companies.
9. SUMMARIZED COMBINING FINANCIAL INFORMATION
Summarized condensed combining financial information for the
facility companies and the real estate companies is as follows:
Balance sheet information (Dollars in thousands):
<TABLE>
<CAPTION>
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 1996
Current assets $ 6,626 $ 930 $ (596) $ 6,960
Noncurrent assets 1,944 29,991 (4,438) 27,497
----------------------------------------------------------------------------------------------------------------
Total assets $ 8,570 $ 30,921 $ (5,034) $ 34,457
================================================================================================================
Current liabilities $ 3,396 $ 2,335 $ (596) $ 5,136
Noncurrent liabilities 4,439 27,487 (4,438) 27,487
----------------------------------------------------------------------------------------------------------------
Total liabilities 7,835 29,822 (5,034) 32,623
Stockholders' equity 735 1,099 -- 1,834
----------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 8,570 $ 30,921 $ (5,034) $ 34,457
================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
46
<PAGE> 47
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
<TABLE>
<CAPTION>
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 1997
Current assets $ 6,749 $ 842 $ (310) $ 7,281
Noncurrent assets 2,347 28,546 (5,327) 25,566
----------------------------------------------------------------------------------------------------------------
Total assets $ 9,096 $ 29,388 $ (5,637) $ 32,847
================================================================================================================
Current liabilities $ 2,994 $ 2,669 $ (310) $ 5,353
Noncurrent liabilities 5,327 25,560 (5,327) 25,560
----------------------------------------------------------------------------------------------------------------
Total liabilities 8,321 28,229 (5,637) 30,913
Stockholders' equity 775 1,159 -- 1,934
----------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 9,096 $ 29,388 $ (5,637) $ 32,847
================================================================================================================
</TABLE>
Statement of Operations information (Dollars in thousands):
<TABLE>
<CAPTION>
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995
Gross revenues $ 25,839 $ 5,342 $ (5,342) $ 25,839
Costs and expenses (25,118) (1,267) 5,342 (21,043)
------------------------------------------------------------------------------------------------------------------
Income from operations 721 4,075 -- 4,796
Other expenses (288) (1,495) -- (1,783)
------------------------------------------------------------------------------------------------------------------
Net income $ 433 $ 2,580 $ -- $ 3,013
==================================================================================================================
YEAR ENDED JUNE 30, 1996
Gross revenues $ 27,753 $ 5,302 $ (5,302) $ 27,753
Costs and expenses (26,997) (1,310) 5,302 (23,005)
------------------------------------------------------------------------------------------------------------------
Income from operations 756 3,992 -- 4,748
Other expenses (310) (1,363) -- (1,673)
------------------------------------------------------------------------------------------------------------------
Net income $ 446 $ 2,629 $ -- $ 3,075
==================================================================================================================
YEAR ENDED JUNE 30, 1997
Gross revenues $ 29,520 $ 5,211 $ (5,211) $ 29,520
Costs and expenses (28,767) (1,275) 5,211 (24,831)
------------------------------------------------------------------------------------------------------------------
Income from operations 753 3,936 -- 4,689
Other expenses (317) (1,325) -- (1,642)
------------------------------------------------------------------------------------------------------------------
Net income $ 436 $ 2,611 $ -- $ 3,047
==================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
47
<PAGE> 48
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Statement of Cash Flows Information (Dollars in thousands):
<TABLE>
<CAPTION>
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 433 $ 2,580 $ -- $ 3,013
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Loss on sale of equipment -- 2 -- 2
Depreciation and amortization 16 1,020 -- 1,036
Change in assets and liabilities:
Decrease in accounts receivable -
residents 135 -- -- 135
Increase in accounts receivable -
third party payors (585) -- -- (585)
(Increase) decrease in other
receivables and prepaids 261 276 (597) (60)
Increase in accrued management fees (30) -- -- (30)
Increase (decrease) in accounts
payable and other accrued
expenses (265) (16) 597 316
----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (35) 3,862 -- 3,827
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (127) (44) -- (171)
Net (advances) payments on notes with
Rosewood Care Holding Co. -- 24 -- 24
----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (127) (20) -- (147)
----------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayments of notes -- (1,551) -- (1,551)
Dividends paid (356) (2,286) -- (2,642)
----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (356) (3,837) -- (4,193)
----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (518) 5 -- (513)
CASH AND CASH EQUIVALENTS - BEGINNING OF
YEAR 3,029 6 -- 3,035
----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,511 $ 11 $ -- $ 2,522
======================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
48
<PAGE> 49
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
<TABLE>
<CAPTION>
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1996:
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 446 $ 2,629 $ -- $ 3,075
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 34 1,023 -- 1,057
Change in assets and liabilities:
Decrease in accounts receivable -
residents (552) -- -- (552)
Increase in accounts receivable -
third party payors (806) -- -- (806)
(Increase) decrease in other
receivables and prepaids (3) 625 (596) 26
Increase in accrued management fees (73) -- -- (73)
Increase (decrease) in accounts
payable and other accrued
expenses (149) -- 596 447
-----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (1,103) 4,277 -- 3,174
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (80) (79) -- (159)
Net (advances) payments on notes with
Rosewood Care Holding Co. 1,396 (120) -- 1,276
-----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 1,316 (199) -- 1,117
-----------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayments of notes -- (1,667) -- (1,667)
Dividends paid (498) (2,411) -- (2,909)
-----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (498) (4,078) -- (4,576)
-----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (285) -- -- (285)
CASH AND CASH EQUIVALENTS - BEGINNING OF
YEAR 2,511 11 -- 2,522
-----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,226 $ 11 $ -- $ 2,237
=======================================================================================================================
- --------------------------------------------------------------------------------
49
<PAGE> 50
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
</TABLE>
<TABLE>
<CAPTION>
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1997:
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 436 $ 2,611 $ -- $ 3,047
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 45 1,020 -- 1,065
Change in assets and liabilities:
Decrease in accounts receivable -
residents 79 -- -- 79
Increase in accounts receivable -
third party payors (408) -- -- (408)
(Increase) decrease in other
receivables and prepaids 24 352 (286) 90
Decrease in accrued management
fees (199) -- -- (199)
Increase (decrease) in accounts
payable and other accrued
expenses (200) 172 286 258
----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (223) 4,155 -- 3,932
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (50) (105) -- (155)
Net (advances) receipts on notes with affiliates 491 (491) -- --
Net receipts on notes with Rosewood Care
Holding Co. -- 1,022 -- 1,022
----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 441 426 -- 867
----------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayments of notes -- (1,698) -- (1,698)
Dividends paid (400) (2,618) -- (3,018)
----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (400) (4,316) -- (4,716)
----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (182) 265 -- 83
CASH AND CASH EQUIVALENTS - BEGINNING OF
YEAR 2,226 11 -- 2,237
----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,044 $ 276 $ -- $ 2,320
======================================================================================================================
- --------------------------------------------------------------------------------
50
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
Board of Directors
Rosewood Care Center Facility
and Real Estate Companies
St. Louis, Missouri
We have audited, in accordance with generally accepted auditing standards,
the combined financial statements of Rosewood Care Center Facility Companies
and Real Estate Companies as of June 30, 1996 and 1997 and for each of three
years in the period ended June 30, 1995, 1996 and 1997, and have issued our
report thereon dated September 12, 1997. The combined financial statement
schedules are the responsibility of the Company's management and are
presented for the purpose of complying with Securities and Exchange
Commission's rules and are not part of the combined financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the combined financial statements and, in our opinion, presents
fairly in all material respects the financial data required to be set forth
herein in relation to the combined financial statements taken as a whole.
/s/ Rubin, Brown, Gornstein & Co. LLP
RUBIN, BROWN, GORNSTEIN & CO. LLP
St. Louis, Missouri
September 12, 1997
- --------------------------------------------------------------------------------
51
<PAGE> 52
</TABLE>
<TABLE>
ROSEWOOD CARE CENTER FACILITIES COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------------------------------------------------
Schedule VIII
Reg S-X210.12-09
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
A B C D E
- -------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------------
CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
Allowance for doubtful accounts $ 102 $ 18 $ -- $ -- $ 120
=========================================================================================================================
YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts $ 120 $ 86 $ -- $ -- $ 206
=========================================================================================================================
YEAR ENDED JUNE 30, 1997:
Allowance for doubtful accounts $ 206 $ 18 $ -- $ -- $ 224
=========================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountants on
accounting and financial disclosures during the fiscal year ended June 30,
1997.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
The following table lists the directors and executive officers of the
REMIC and each of the Companies, their ages and their positions. The director
serves for a term of one year. Each executive officer serves at the pleasure
of the director.
<TABLE>
<CAPTION>
Name Age Position with the Issuer
---- --- ------------------------
<S> <C> <C>
Larry D. Vander Maten 51 Director, President
and Principal Financial and
Accounting Officer
Darrell D. Hoefling 47 Vice President
Louis Netemeyer 50 Controller, Secretary
and Treasurer
</TABLE>
MR. VANDER MATEN is a founder and principal shareholder (through his
trust or his family limited partnership) of the REMIC and the Companies. Mr.
Vander Maten is actively involved in related companies in which Mr. Vander
Maten, his trust or his family limited partnership is the principal
shareholder. Such businesses have the same management as and operate
substantially similar businesses or businesses closely related to that of the
Companies. Mr. Vander Maten also serves on the Board of Directors of
Charlestown, a life care retirement community in Baltimore, Maryland and
Henry Ford Village, a life care retirement community in Dearborn, Michigan.
MR. HOEFLING is Vice President of the REMIC and has been Vice President
of Operations of the Companies and the affiliated Rosewood companies since
1985. He is a shareholder (through his trust or his family limited
partnership) of the Companies and all affiliated Rosewood companies.
MR. NETEMEYER has been Controller, Secretary and Treasurer of the REMIC
since its formation and of the Companies since 1985.
ITEM 11. EXECUTIVE COMPENSATION.
The REMIC has no employees and pays no salaries to its officers. The
Companies also do not regularly pay salaries to any officers. The regular
compensation of the executive officers for services rendered to the Companies
is paid by HSM Management, pursuant to the Management Agreements or the
Administrative Services Agreements. Currently, HSM Management pays all such
compensation in the form of cash. Except for any incentive compensation
which may be paid to Messrs. Vander Maten and Hoefling, all such compensation
is paid from the base management fee payable to HSM Management pursuant to
the Management Agreements.
53
<PAGE> 54
THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION WITH RESPECT TO THE
ANNUAL COMPENSATION PAID OR ACCRUED FOR FISCAL YEAR ENDED JUNE 30, 1997 TO
THE CHIEF EXECUTIVE OFFICER OF THE REMIC AND THE COMPANIES AND TO THE ONLY
OTHER EXECUTIVE OFFICER WHOSE TOTAL SALARY EXCEEDED $100,000 DURING SUCH
FISCAL YEAR.
<TABLE>
<CAPTION>
Name and Principal Position Salary Bonus
- --------------------------- ------ -----
<S> <C> <C>
Larry D. Vander Maten
President $323,000 <F1> $144,000 <F2>
Darrell D. Hoefling
Vice President $231,000 <F1> $ 48,000 <F2>
<FN>
- ----------------------
<F1> Represents amounts paid to Messrs. Vander Maten and Hoefling by HSM
Management. These amounts are allocated by HSM Management based on the
number of facilities that HSM Management manages for the Companies and their
affiliates and the value rendered to individual facilities.
<F2> Paid by the Companies.
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the shares of the REMIC and the
Companies beneficially owned by each person who is the beneficial owner of
more than 5% of the outstanding shares. All of the shares set forth in the
following table are subject to an agreement between the shareholders
restricting transfer of the shares. Each person named in the table has sole
voting and investment power with respect to all shares shown in the table as
being owned by such person. There are no arrangements known to the REMIC or
the Companies which may, at a subsequent date, result in change in control of
the REMIC or the Companies.
<TABLE>
<CAPTION>
Percent
Type of Stock Name and Address of Owner of Ownership
- ------------- ------------------------- ------------
<C> <S> <C>
Common Stock Larry D. Vander Maten, as Trustee of
Larry D. Vander Maten Revocable Trust 75%
Or
Vander Maten Family Limited Partnership,
11701 Borman Drive, Suite 315
St. Louis, Missouri 63146
Common Stock Darrell D. Hoefling, as Trustee of
Darrell D. Hoefling Revocable Trust 25%
Or
Hoefling Family Limited Partnership
11701 Borman Drive, Suite 315
St. Louis, Missouri 63146
</TABLE>
54
<PAGE> 55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1997 and 1996 the Companies loaned excess cash to an affiliate,
Rosewood Care Center Holding Co., pursuant to certain promissory notes.
Rosewood Care Center Holding Co. is owned 75% by Mr. Vander Maten's family
limited partnership and 25% by Mr. Hoefling's family limited partnership.
Mr. Vander Maten and Mr. Hoefling through their respective controlled
corporations act as general partner of their respective limited partnerships.
Mr. Vander Maten is the president and sole director and Mr. Hoefling is the
vice president of Rosewood Care Center Holding Co. The highest amount of
such indebtedness by Rosewood Care Center Holding Co. to the Companies during
1997 and 1996 was $9,571,000 and $10,953,000 respectively. At June 30, 1997
and 1996, the amount of such indebtedness of Rosewood Care Center Holding Co.
to the Companies was $7,033,712 and $8,055,448 respectively.
At the closing on the issuance of the REMIC's 7 1/4% First Mortgage
Redeemable Bonds due November 1, 2013, $4,369,000 in excess proceeds were
loaned to Rosewood Care Center Holding Co. pursuant to notes to each
Borrowing Company bearing interest at 7 1/4% per annum and having maturities
of October 1997. As of June 30, 1996, when the remaining balance of the
notes aggregated $3,485,000, the original notes were cancelled and replaced
with notes bearing interest at 7 1/4% per annum and due December 31, 1999. At
June 30, 1997, the remaining balance of the notes aggregated $2,841,097.
In December 1993, Rosewood Care Center Holding Co. obtained a letter of
credit which was deposited with the Trustee of the Trust Indenture into the
debt service reserve fund for the benefit of holders of the REMIC's 7 1/4%
First Mortgage Redeemable Bonds due November 1, 2013. Cash of approximately
$3,130,000 which was being held in the debt service reserve fund was then
loaned to Rosewood Care Center Holding Co. pursuant to 3 year notes bearing
interest at 7 1/4% per annum. Subsequently, the notes aggregating
approximately $3,130,000 were cancelled and replaced with revolving credit
notes to allow additional amounts of excess cash to be loaned to Rosewood
Care Center Holding Co. without the necessity of continuously revising or
executing new promissory notes. As of June 30, 1996 outstanding notes were
cancelled and replaced with six (6) new revolving credit notes which allow
Rosewood Care Center Holding Co. to borrow, pursuant to the revolving credit
notes, an aggregate up to $9,100,000 from the borrowing companies. The notes
bear interest at 7-1/4% per annum and are due December 31, 1999. The balance
outstanding for the revolving credit notes aggregated $4,192,615 as of June
30, 1997. All of the notes from Rosewood Care Center Holding Co. to the
Borrowing Companies are pledged to the Trustee under the Trust Indenture as
additional collateral security for repayment of the REMIC's 7 1/4% First
Mortgage Redeemable Bonds due November 1, 2013.
55
<PAGE> 56
The Guarantors incurred expenses for management fees to HSM Management
during the year ended June 30, 1997 and 1996 of approximately $2,640,352 and
$2,771,222 for services rendered during the 1997 and 1996 fiscal year
respectively. HSM Management is a wholly owned subsidiary of Rosewood Care
Center Holding Co. Mr. Vander Maten and Mr. Hoefling are the President and
Vice President respectively of HSM Management and Mr. Vander Maten is HSM
Management's sole director. At June 30, 1997 and 1996, $265,000 and
$464,000, respectively, of such fees were unpaid. All such accrued fees were
paid subsequent to the end of the 1997 and 1996 fiscal years. Pursuant to
the management agreements entered into as of October 21, 1993, the bond issue
date, it was anticipated that the Guarantors would, from time to time, accrue
a portion of the incentive management fees and thus be indebted to the
management company until such amounts were paid. Under the loan documents,
payment of the management fees is subordinated and any note given to the
management company for incentive management fees must be subordinated to
payment of the bonds and preclude remedial action against the Companies until
the bonds are paid in full. The management agreements entered into at the
time of the bond issuance continue in full force and effect.
HSM Management pays the compensation of persons who render management
services to the Guarantors. Such compensation is paid from the base
management fee payable pursuant to the management agreements. In the last
fiscal year, HSM Management allocated $323,000 and $231,000 as the
compensation paid to Messrs. Vander Maten and Hoefling, respectively,
relating to services rendered to the Guarantors. This compensation
arrangement is anticipated to continue.
Each Guarantor pays an annual license fee of $3,000 to Rosewood Care
Center Holding Co. under the terms of a license agreement dated June 30, 1996
under which the Companies are authorized to use the name "Rosewood Care
Center".
Construction of a 60 bed expansion of the facility at Rosewood Care
Center of Galesburg is proceeding as originally planned. The construction is
the undertaking of a related company, Galesburg Real Estate II, L.L.C., which
is owned 75% by Mr. Vander Maten's family limited partnership and 25% by Mr.
Hoefling's family limited partnership. Mr. Vander Maten is the Manager of
Galesburg Real Estate II, L.L.C. Galesburg Real Estate II, L.L.C. was granted
a long term ground lease and easements by Galesburg Real Estate, Inc., as
permitted under the loan documents, for the purpose of facilitating the
expansion. The expansion building is connected to the existing Galesburg
facility by a corridor. The expansion building is owned by the affiliate
Galesburg Real Estate II, L.L.C. but when licensed will be operated by
Rosewood Care Center, Inc. of Galesburg and managed by HSM Management. The
expansion building may share some special use areas and equipment with the
Galesburg facility. However, the Galesburg facility will continue to be able
to function as a separate facility. Therefore, if it should become necessary
or desirable to sever the expansion building from the Galesburg facility or
cease operation of the expansion building, there should be no material
adverse effect on the existing Galesburg facility's ability to operate as a
complete, separate physical structure. Although any rents or proceeds from
the ground lease and easements are encumbered, the ground leases and
easements are not encumbered by the mortgage held by the REMIC on the
Galesburg facility. The bifurcated ownership structure is required by the
loan documents and is intended to shelter bondholders from risks associated
with construction. The opening of Galesburg facility expansion is projected
for Fall 1997.
The expansion of the Alton facility on terms substantially similar to
those described above for the Galesburg facility is nearing completion and a
Fall 1997 opening is projected. Similar expansion is a possibility at any or
all of the remaining facilities.
56
<PAGE> 57
The Guarantors are all subsidiaries of and file a consolidated tax
return with Rosewood Care Center Holding Co. As of June 30, 1997 and 1996,
the Companies owed $50,115 and $88,263, respectively, to Rosewood Care Center
Holding Co. as their share of income taxes due and payable in the current
year. All such accrued amounts were paid subsequent to the end of the 1997
and 1996 fiscal years.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(a) 1 AND 2 FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The financial statements and the financial statement schedule listed in
Item 8 in the index to Combined Financial Statements and Supplementary Data
are filed as part of this annual report on Form 10-K.
(a) 3 EXHIBITS
The Exhibits listed in the accompanying index to exhibits are
incorporated by reference herein and filed as part of this annual report on
Form 10-K.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter.
(c) EXHIBITS
See the accompanying index to exhibits referenced in Item 14(a)(3)
above for a list of exhibits incorporated herein by reference or filed as
part of this annual report on Form 10-K.
(d) FINANCIAL STATEMENT SCHEDULE
See the accompanying index to Combined Financial Statements and
Supplementary Data referenced in Item 14(a)1 and 2 above.
57
<PAGE> 58
SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT
BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
The Registrant has only debt registered under the Securities Act of
1933. No annual report has been or will be sent to security (bond) holders.
If any security holder requests information, a copy of this annual report on
Form 10-K will be sent to such security holder.
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION, Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and
Principal Financial and Accounting Officer)
59
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
SWANSEA, Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
60
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
GALESBURG, Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
61
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
PEORIA, Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
62
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
EAST PEORIA, Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
63
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
ALTON, Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
64
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
MOLINE, Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
65
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SWANSEA REAL ESTATE, INC., Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal and Executive Officer and Principal
Financial and Accounting Officer)
66
<PAGE> 67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GALESBURG REAL ESTATE, INC., Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
--------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
67
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PEORIA REAL ESTATE, INC., Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
68
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EAST PEORIA REAL ESTATE, INC., Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
69
<PAGE> 70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALTON REAL ESTATE, INC., Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
70
<PAGE> 71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MOLINE REAL ESTATE, INC., Registrant
Dated: September 24, 1997 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
71
<PAGE> 72
ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
3.1 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Centers Capital Funding Corporation
filed on September 28, 1994 as Exhibit 3.1 of the Form 10-K of
Registrants.
3.2 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of Swansea filed on
September 28, 1994 as Exhibit 3.2 of the Form 10-K of Registrants.
3.3 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of Galesburg filed on
September 28, 1994 as Exhibit 3.3 of the Form 10-K of Registrants.
3.4 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of East Peoria filed on
September 28, 1994 as Exhibit 3.4 of the Form 10-K of Registrants.
3.5 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of Peoria filed on
September 28, 1994 as Exhibit 3.5 of the Form 10-K of Registrants.
3.6 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of Alton filed on
September 28, 1994 as Exhibit 3.6 of the Form 10-K of Registrants.
3.7 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of Moline filed on
September 28, 1994 as Exhibit 3.7 of the Form 10-K of Registrants.
3.8 Reference is made to the Amended and Restated Articles of
Incorporation of Swansea Real Estate, Inc. filed on September 28,
1994 as Exhibit 3.8 of the Form 10-K of Registrants.
3.9 Reference is made to the Amended and Restated Articles of
Incorporation of Galesburg Real Estate, Inc. filed on September 28,
1994 as Exhibit 3.9 of the Form 10-K of Registrants.
3.10 Reference is made to the Amended and Restated Articles of
Incorporation of East Peoria Real Estate, Inc. filed on September
28, 1994 as Exhibit 3.10 of the Form 10-K of Registrants.
3.11 Reference is made to the Amended and Restated Articles of
Incorporation of Peoria Real Estate, Inc. filed on September 28,
1994 as Exhibit 3.11 of the Form 10-K of Registrants.
3.12 Reference is made to the Amended and Restated Articles of
Incorporation of Alton Real Estate, Inc. filed on September 28, 1994
as Exhibit 3.12 of the Form 10-K of Registrants.
72
<PAGE> 73
3.13 Reference is made to the Amended and Restated Articles of
Incorporation of Moline Real Estate, Inc. filed on September 28,
1994 as Exhibit 3.13 of the Form 10-K of Registrants.
3.14 Reference is made to the Bylaws of Rosewood Care Centers Capital
Funding Corporation filed on July 13, 1993 as Exhibit 3.14 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
3.15 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
Swansea filed on July 13, 1993 as Exhibit 3.15 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.16 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
Galesburg filed on July 13, 1993 as Exhibit 3.16 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.17 Reference is made to the Bylaws of Rosewood Care Center, Inc. of East
Peoria filed on July 13, 1993 as Exhibit 3.17 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.18 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
Peoria filed on July 13, 1993 as Exhibit 3.18 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.19 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
Alton filed on July 13, 1993 as Exhibit 3.19 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.20 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
Moline filed on July 13, 1993 as Exhibit 3.20 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.21 Reference is made to the Bylaws of Swansea Real Estate, Inc. filed on
July 13, 1993 as Exhibit 3.21 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
3.22 Reference is made to the Bylaws of Galesburg Real Estate, Inc. filed
on July 13, 1993 as Exhibit 3.22 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
3.23 Reference is made to the Bylaws of East Peoria Real Estate, Inc.
filed on July 13, 1993 as Exhibit 3.23 of the Registration Statement
of Registrants (No. 33-65948) declared effective October 14, 1993.
3.24 Reference is made to the Bylaws of Peoria Real Estate, Inc. filed on
July 13, 1993 as Exhibit 3.24 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
3.25 Reference is made to the Bylaws of Alton Real Estate, Inc. filed on
July 13, 1993 as Exhibit 3.25 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
3.26 Reference is made to the Bylaws of Moline Real Estate, Inc. filed on
July 13, 1993 as Exhibit 3.26 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
73
<PAGE> 74
4.1 Reference is made to Article III of the Articles of Incorporation of
Rosewood Care Centers Capital Funding Corporation filed on July 13,
1993 as Exhibit 3.1 (and referenced in Exhibit 4.1) of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
4.2 Reference is made to the Trust Indenture filed on November 29, 1993
as Exhibit 4.2 of the Form 10-Q of Registrants.
4.3 Reference is made to the Bond filed on November 29, 1993 as Exhibit
4.3 of the Form 10-Q of Registrants.
4.4 Reference is made to the Loan Guaranty Agreement between Rosewood
Care Centers Capital Funding Corporation and Rosewood Care Center,
Inc. of Alton and the additional Loan Guaranty Agreements listed on
the Schedule filed on November 29, 1993 as Exhibit 4.4 of the Form
10-Q of Registrants.
4.5 Reference is made to the Note executed by Alton Real Estate, Inc. and
the additional Notes listed on the Schedule filed on November 29,
1993 as Exhibit 4.5 of the Form 10-Q of Registrants.
10.1 Reference is made to the Trust Indenture filed on November 29, 1993
as Exhibit 4.2 of the Form 10-Q of Registrants.
10.2 Reference is made to the Collateral Pledge and Security Agreement
between Rosewood Care Centers Capital Funding Corporation and Alton
Real Estate, Inc. and the additional Collateral Pledge and Security
Agreements listed on the Schedule filed on November 29, 1993 as
Exhibit 10.2 of the Form 10-Q of Registrants.
10.3 Reference is made to the Mortgage Between Alton Real Estate, Inc. and
Rosewood Care Centers Capital Funding Corporation and the
additional Mortgages listed on the Schedule filed on November 29,
1993 as Exhibit 10.3 of the Form 10-Q of Registrants.
10.4 Reference is made to the Security Agreement between Rosewood Care
Centers Capital Funding Corporation and Rosewood Care Center, Inc.
of Alton and the additional Security Agreements listed on the
Schedule filed on November 29, 1993 as Exhibit 10.4 of the Form 10-Q
of Registrants.
10.5 Reference is made to the Assignment of Rents and Leases between
Rosewood Care Centers Capital Funding Corporation and Alton Real
Estate, Inc. and the additional Assignments of Rents and Leases
listed on the Schedule filed on November 29, 1993 as Exhibit 10.5 of
the Form 10-Q of Registrants.
10.6 Reference is made to the Subordination and Attornment Agreement
between Rosewood Care Centers Capital Funding Corporation and Alton
Real Estate, Inc. and the additional Subordination and Attornment
Agreements listed on the Schedule filed on November 29, 1993 as
Exhibit 10.6 of the Form 10-Q of Registrants.
10.7 Reference is made to the Acknowledgment and Consent between Rosewood
Care Centers Capital Funding Corporation and Hovan Enterprises, Inc.
filed on November 29, 1993 as Exhibit 10.7 of the Form 10-Q of
Registrants
10.8 Reference is made to the Administrative Services Agreement between
Hovan Enterprises, Inc. and Alton Real Estate, Inc. and the
additional Administrative Services Agreements listed on the Schedule
filed on November 29, 1993 as Exhibit 10.8 of the Form 10-Q of
Registrants.
74
<PAGE> 75
10.9 Reference is made to the Revised and Restated Management Agreement
between Rosewood Care Center, Inc. of Alton and Hovan Enterprises,
Inc. and the additional Revised and Restated Management Agreements
listed on the Schedule filed on November 29, 1993 as Exhibit 10.9 of
the Form 10-Q of Registrants.
10.10 Reference is made to the Lease between Alton Real Estate, Inc. and
Rosewood Care Center, Inc. of Alton and the additional Leases listed
on the Schedule filed on November 29, 1993 as Exhibit 10.10 of the
Form 10-Q of Registrants.
10.11 Reference is made to the Assignment of Management Agreement between
Rosewood Care Center, Inc. of Alton and Mercantile Bank and the
additional Assignments of Management Agreement listed on the
Schedule filed on November 29, 1993 as Exhibit 10.11 of the Form
10-Q of Registrants.
10.12 Reference is made to the Contract between Resident and Facility filed
on July 13, 1993 as Exhibit 10.12 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
10.13 Reference is made to the Loan Agreement among Rosewood Care Centers
Capital Funding Corporation and Alton Real Estate, Inc., Swansea
Real Estate, Inc., Peoria Real Estate, Inc., East Peoria Real
Estate, Inc., Moline Real Estate, Inc., and Galesburg Real Estate,
Inc. filed on November 29, 1993 as Exhibit 10.13 of the Form 10-Q of
Registrants.
10.14 Reference is made to the Loan Guaranty Agreement filed on November
29, 1993 as Exhibit 4.4 of the Form 10-Q of Registrants.
10.15 Reference is made to the Letter of Credit issued by Sun Bank,
National Association to Mercantile Bank of St. Louis N.A. as Trustee
under the Trust Indenture on December 6, 1993 and substituted for
the cash in the Debt Service Reserve Fund on December 9, 1993, filed
on February 11, 1994 as Exhibit 10.15 on the Form 10-Q of the
Registrants.
10.16 Reference is made to the renewal of the Letter of Credit filed on
February 11, 1994 as Exhibit 10.15 on the Form 10-Q of the
Registrants, which renewal was filed on February 14, 1996 as Exhibit
10.16 of the Form 10-Q of the Registrants.
10.17 Reference is made to the renewal of the Letter of Credit filed on
February 11, 1994 as Exhibit 10.15 on the Form 10-Q of the
Registrants, which renewal was filed on February 13, 1996 as Exhibit
10.17 of the Form 10-Q of the Registrants.
10.18 Reference is made to the renewal of the Letter of Credit filed on
February 11, 1994 as Exhibit 10.15 on the Form 10-Q of the
Registrants, which renewal was filed on November 13, 1996 as
Exhibit 10.18 of the Form 10-Q of the Registrants.
27.1 Financial Data Schedule of Rosewood Care Center Capital Funding
Corporation.
27.2 Financial Data Schedule of Rosewood Care Center of Galesburg.
27.3 Financial Data Schedule of Rosewood Care Center of Swansea.
75
<PAGE> 76
27.4 Financial Data Schedule of Rosewood Care Center of East Peoria.
27.5 Financial Data Schedule of Rosewood Care Center of Peoria.
27.6 Financial Data Schedule of Rosewood Care Center of Alton.
27.7 Financial Data Schedule of Rosewood Care Center of Moline.
27.8 Financial Data Schedule of Swansea Real Estate.
27.9 Financial Data Schedule of Galesburg Real Estate.
27.10 Financial Data Schedule of East Peoria Real Estate.
27.11 Financial Data Schedule of Peoria Real Estate.
27.12 Financial Data Schedule of Alton Real Estate.
27.13 Financial Data Schedule of Moline Real Estate.
99.1 Reference is made to the Amended and Restated License Agreement filed
on September 28, 1994 as Exhibit 99.1 of the Form 10-K of the
Registrants.
99.2 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of Swansea filed on July 13, 1993 as Exhibit 99.2 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.3 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of Alton filed on July 13, 1993 as Exhibit 99.3 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.4 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of East Peoria filed on July 13, 1993 as Exhibit 99.4 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.5 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of Peoria filed on July 13, 1993 as Exhibit 99.5 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.6 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of Galesburg filed on July 13, 1993 as Exhibit 99.6 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.7 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of Moline filed on July 13, 1993 as Exhibit 99.7 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.8 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
Swansea filed on July 13, 1993 as Exhibit 99.8 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
76
<PAGE> 77
99.9 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
Alton filed on July 13, 1993 as Exhibit 99.9 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
99.10 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
East Peoria filed on July 13, 1993 as Exhibit 99.10 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.11 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
Peoria filed on July 13, 1993 as Exhibit 99.11 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
99.12 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
Galesburg filed on July 13, 1993 as Exhibit 99.12 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.13 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
Moline filed on July 13, 1993 as Exhibit 99.13 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
99.14 Reference is made to the Lease Agreement filed on September 28, 1994
as Exhibit 99.14 of the Form 10-K of the Registrants.
99.15 Reference is made to the Revised and Restated Grant and Declaration
of Easements filed on September 28, 1994 as Exhibit 99.15 of the
Form 10-K of the Registrants.
99.16 Reference is made to the Managed Care Agreement between Rosewood Care
Center, Inc. of Moline, Heritage National Health Plan, Inc., John
Deere Family Health Plan and Deere and Company filed on May 15, 1996
as Exhibit 99.16 of the Form 10-Q of the Registrants.
99.17 Reference is made to the Skilled Nursing Facility Agreement between
Health Care Service Corporation and Rosewood Care Center, et al.
filed on September 26, 1996 as Exhibit 99.17 of the Form 10-K of the
Registrants.
</TABLE>
77
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements at June 30, 1997 for the year ended June 30, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909110
<NAME> ROSEWOOD CARE CENTER CAPITAL FUNDING CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 27,581
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 167
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,749
<CURRENT-LIABILITIES> 167
<BONDS> 27,581
<COMMON> 1
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,749
<SALES> 0
<TOTAL-REVENUES> 2,057
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,057
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909114
<NAME> ROSEWOOD CARE CENTER OF GALESBURG
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,320
<SECURITIES> 0
<RECEIVABLES> 4,811
<ALLOWANCES> 224
<INVENTORY> 0
<CURRENT-ASSETS> 7,281
<PP&E> 24,937
<DEPRECIATION> 7,370
<TOTAL-ASSETS> 32,847
<CURRENT-LIABILITIES> 5,353
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,869
<TOTAL-LIABILITY-AND-EQUITY> 32,847
<SALES> 29,444
<TOTAL-REVENUES> 30,205
<CGS> 0
<TOTAL-COSTS> 24,831
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,057
<INCOME-PRETAX> 3,317
<INCOME-TAX> 270
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,047
<EPS-PRIMARY> 47
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909113
<NAME> ROSEWOOD CARE CENTER OF SWANSEA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909115
<NAME> ROSEWOOD CARE CENTER OF EAST PEORIA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909116
<NAME> ROSEWOOD CARE CENTER OF PEORIA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909117
<NAME> ROSEWOOD CARE CENTER OF ALTON
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909118
<NAME> ROSEWOOD CARE CENTER OF MOLINE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909120
<NAME> SWANSEA REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909121
<NAME> GALESBURG REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909122
<NAME> EAST PEORIA REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909123
<NAME> PEORIA REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909124
<NAME> ALTON REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements at June 30, 1997 for the year ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000909125
<NAME> MOLINE REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 4,764
<ALLOWANCES> 89
<INVENTORY> 0
<CURRENT-ASSETS> 7,377
<PP&E> 24,899
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 33,288
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,890
<TOTAL-LIABILITY-AND-EQUITY> 33,288
<SALES> 22,197
<TOTAL-REVENUES> 22,774
<CGS> 0
<TOTAL-COSTS> 18,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,553
<INCOME-PRETAX> 2,847
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,602
<EPS-PRIMARY> 40
<EPS-DILUTED> 0
</TABLE>
